A practical guide for self-funded retirees with SMSFs on how superannuation structure, pension phase and contribution timing interact with the aged care means test.
Most aged care financial planning content focuses on Centrelink, the family home and Refundable Accommodation Deposits. Far less is written about a question that matters enormously to self-funded retirees: how does running your own Self-managed super fund (SMSF), with its own pension rules, contribution caps and in-specie transfer mechanics, interact with the way aged care fees are actually calculated?
Quick summary
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The short answer is that SMSF assets get no special treatment. Whether your super sits in accumulation phase or is paying you a retirement-phase pension, it is counted in the aged care means assessment in essentially the same way as a balance held with a retail or industry fund. But the timing decisions unique to running an SMSF, including when to commence a pension, when to make or stop contributions and whether to transfer an asset in-specie rather than sell it, can materially change the numbers on your means assessment. This article works through those mechanics using current government rates and thresholds.
How super is actually counted in the aged care means test
A common assumption is that superannuation in pension phase is somehow shielded the way the family home can be. It isn’t. Government guidance on means assessments for residential aged care is explicit that superannuation and income from income stream products, including allocated pensions, are assessable income and account-based superannuation in pension phase is included as a financial asset in the assets test.
This matters because aged care means assessments use deeming rather than actual return, the same approach used for the Age Pension. A financial asset is assumed to earn a set rate of income regardless of what it actually returns. Because SMSF pension accounts are deemed, two retirees with identical balances are assessed identically for means-testing purposes regardless of how their underlying investments perform. A growth-heavy SMSF pension account is deemed at the same rate as one sitting in cash.
| Key fact
Superannuation in accumulation phase is excluded from the Age Pension assets test while the member is under Age Pension age, but this exclusion does not extend to the aged care means assessment in the same way. Aged care means testing draws on a broader asset base and once a member is past preservation age and accessing benefits, fund balances are generally counted. For couples, half of combined income and assets is included in the means assessment regardless of whose name the SMSF balance sits in. |
Pension phase mechanics that affect the numbers
Minimum drawdowns still apply once you’re in care
Entering aged care does not pause SMSF pension obligations. The trustee must still pay the minimum annual amount from each pension account by 30 June, calculated as a percentage of the 1 July account balance that rises with age. If the minimum is not paid, the Australian Tax Office (ATO) treats the pension as having ceased from the start of that financial year for tax purposes. Fund earnings lose their tax-exempt status and the trustee must lodge a Transfer Balance Account Report (TBAR) recording the cessation. For a couple where one partner is managing the SMSF while the other is in care, this is an easy compliance step to lose track of during an already difficult transition.
The transfer balance cap shapes how much can be moved into pension phase
From 1 July 2025 the general transfer balance cap is $2 million, rising to $2.1 million from 1 July 2026. This is the lifetime limit on how much super can be moved into a tax-free retirement-phase pension. Amounts above the cap must stay in accumulation phase, where fund earnings are taxed at up to 15%. For aged care planning purposes, this cap doesn’t change how the asset is counted in the means test (accumulation and pension balances are both assessable), but it does affect how much investment income is available to fund means-tested fees without drawing down capital.
In-specie transfers: what they do and don’t change for aged care
An in-specie transfer moves an asset, typically listed shares or business real property, into or out of an SMSF without converting it to cash first. For a self-funded retiree approaching aged care, the relevant question is usually about transfers out of the fund, since lump sum benefit payments (but not pension payments) can be made in-specie.
A few points are worth being precise about, based on current ATO and government guidance:
- A transfer of an asset out of an SMSF, whether in-specie or as a straight sale, triggers a Capital gains tax (CGT) event for the fund. If the fund is in pension phase and the asset supports a retirement-phase income stream, the resulting capital gain may be exempt under exempt current pension income (ECPI) rules. Timing the transfer relative to when a pension commenced can materially affect the tax outcome.
- In-specie transfers do not avoid the aged care means test. Once an asset leaves the SMSF and becomes a personally held asset (for example, real property transferred to a member), it is assessed in the means test the same way any personally owned asset would be. There is no exemption simply because the asset originated inside super.
- Only lump sum benefit payments can be made in-specie. Regular pension payments must be made in cash, which means an SMSF needs a cash flow plan for ongoing pension obligations even where most of the fund’s value sits in property or shares.
The practical implication is that an in-specie transfer is a tax and liquidity decision, not a means-test minimisation strategy. Moving a property out of an SMSF and into a member’s own name doesn’t make it disappear from a means assessment. It simply changes which set of rules (super means-testing vs personal asset means-testing) applies to it and both routes are assessable.
Contribution timing around entry to care
For self-funded retirees who are still within working-test-free contribution windows, the timing of contributions before a means assessment can matter, particularly where a spouse remains at home and the couple has unequal balances.
Current contribution caps (2026–27)
From 1 July 2026, the concessional contributions cap is $32,500 and the non-concessional contributions cap is $130,000. Under the bring-forward rule, a person with a total super balance under $1.84 million as at 30 June 2026 may be able to bring forward up to three years of non-concessional caps, contributing as much as $390,000 in a single year. Where total super balance is at or above the general transfer balance cap ($2.1 million from 1 July 2026), the non-concessional cap drops to nil.
Spouse contribution splitting before means assessment
Because aged care means assessments for couples pool half of combined income and assets regardless of whose name the asset is held in, equalising balances between spouses generally has no effect on the means-tested fee once both are assessed as a couple. Where it can matter is in the period before a couple is jointly assessed, or where contribution timing affects which financial year a balance is reported in ahead of a means assessment being lodged.
| Worth checking before any contribution near aged care entry
Contributions made shortly before a means assessment are reflected in the fund balance reported. There’s no carve-out for recent contributions, unlike the deprivation rules that apply to gifts. Gifting rules are separate from contribution rules: gifts above $10,000 in a financial year, or $30,000 over five years, are treated as if you still own the asset for five years from the date of the gift. This applies whether the gift comes from inside or outside super. |
Why this is easy to get wrong
Two assumptions cause the most confusion. The first is that pension-phase super is treated like an exempt asset. It isn’t; only the principal home carries that kind of protection and even then only while a protected person continues to live in it. The second is that moving an asset out of super removes it from scrutiny. It simply moves it into a different, equally assessable, category.
Where SMSF structuring genuinely affects aged care outcomes is in cash flow and tax efficiency: ensuring minimum pension payments are met without forced asset sales at a bad time, sequencing in-specie transfers to align with ECPI exemptions and understanding contribution cap headroom before, not after, a means assessment is lodged. None of these change what gets counted. They change how efficiently the fund can support both the member’s care costs and their broader retirement and estate position while doing so.
Frequently asked questions
Does an SMSF pension count in the aged care means test?
Yes. Account-based superannuation pensions, including SMSF pensions, are included as a financial asset in the residential aged care means assessment and are assessed using deeming rather than actual investment return. There is no exemption for pension-phase super in the way there is for the principal home.
Can moving assets out of an SMSF reduce aged care fees?
No, not on its own. Transferring an asset out of an SMSF, including in-specie, changes whether it is assessed under superannuation rules or as a personally held asset, but it remains assessable either way. It is a tax and liquidity decision, not a means-test reduction strategy.
Do I still need to make minimum pension payments once I’m in aged care?
Yes. Entering aged care does not pause SMSF obligations. The trustee must still pay the minimum annual pension amount by 30 June each year. Missing it can cause the ATO to treat the pension as ceased from the start of that financial year, removing the fund’s tax-exempt earnings status.
What is an in-specie transfer and how does it affect tax?
An in-specie transfer moves an asset, such as shares or business real property, into or out of an SMSF without first converting it to cash. It still triggers a CGT event, though gains may be exempt under exempt current pension income (ECPI) rules if the fund is in pension phase at the time.
How much can I contribute to my SMSF before entering aged care?
From 1 July 2026 the concessional contributions cap is $32,500 and the non-concessional cap is $130,000 a year, with bring-forward provisions allowing up to $390,000 in a single year for eligible balances. Contributions made shortly before a means assessment are still counted in full; there is no exemption for recent contributions.
Are SMSF assets assessed differently for couples?
No. Where one partner enters aged care, half of the couple’s combined income and assets, including SMSF balances, is included in the means assessment regardless of which partner’s name the assets are held in. This applies whether the fund is in accumulation or pension phase.
Talk to Paris Financial about your situation
Every SMSF is different and the way pension phase, contribution timing and asset structure interact with an aged care means assessment depends on your fund’s specific circumstances, trust deed and family situation. If you or a loved one are weighing up aged care while running a self-managed super fund, the team at Paris Financial can help you work through the numbers and put a plan in place before decisions need to be made under pressure.
Call Paris Financial on (03) 8393 1000 or get in touch online to arrange a consultation with one of our aged care and SMSF specialists.
| Get in touch
Paris Financial’s aged care and SMSF specialists can review your fund and help you plan ahead with confidence. Phone: (03) 8393 1000 | Email: champions@parisfinancial.com.au |
