Moving an SMSF into pension phase with property in it changes two things at once. The tax on the fund’s earnings falls to nothing. And the fund must pay you a minimum pension in cash every year, whatever the property is doing.
The tax
In accumulation, a fund pays 15 per cent tax on its earnings. Earnings on assets supporting a retirement phase pension are not taxed in the fund, rent and capital gains included. The most each person can move into retirement phase is their transfer balance cap: $2.1 million for anyone starting their first pension from 1 July 2026.
The minimum pension
| Age | Minimum drawn each year |
|---|---|
| Under 65 | 4% |
| 65 to 74 | 5% |
| 75 to 79 | 6% |
| 80 to 84 | 7% |
| 85 to 89 | 9% |
| 90 to 94 | 11% |
| 95 and over | 14% |
The pension must be paid in money. The minimum cannot be met by transferring part of the property to you. So the rent, and whatever cash the fund holds, has to cover it.
A couple, both 68, have $1.4 million in their fund: a $1.1 million property renting for $44,000 a year after costs, and $300,000 in cash. Their minimum pensions come to $70,000 a year.
The rent covers $44,000. The cash covers the other $26,000, which lasts about eleven years if nothing else changes. Each year the minimum rises with age, and the cash runs lower. Somewhere ahead is a sale. Better to see that year coming than to meet it.
Two rule changes in 2026
From 10 August 2026, a fund cannot take out a new loan to buy residential property. Existing loans are not affected, and nor is refinancing them. From 1 July 2026, a person whose total super is above $3 million pays an extra 15 per cent on the earnings for the share over that figure, and a further 10 per cent above $10 million. Most members of a fund with one property sit well below $3 million.
Where it needs the most planning
A fund that holds almost nothing but one property, with little cash, is the one where pension phase needs the most planning. It is not a reason to sell. It is a reason to model the next ten years before starting the pension.
To see your fund’s cash, rent and minimums beside your other income, and the year a sale may be needed, book a first conversation. It costs nothing.
Nicholas Lockhart
Source: ATO, Transfer balance cap (updated 27 April 2026); ATO, Payments from super (updated 16 September 2026); ATO, Better targeted superannuation concessions (updated 7 July 2026); ATO, Limited recourse borrowing arrangement provisions (7 July 2026).