In the accumulation phase, your SMSF is building wealth — contributions are being made, assets are growing, and earnings (including investment income and capital gains) are taxed at a maximum of 15%. This is the default phase for most working members who have not yet met a condition of release such as reaching retirement age.
The pension phase (also called the retirement phase) begins when a member starts drawing a pension from the fund after meeting a condition of release. The major benefit is that investment income and capital gains on assets supporting the pension are generally tax-free, up to the transfer balance cap of $1.9 million. SMSF trustees must ensure minimum annual pension payments are made each year (based on the member’s age), or the fund loses its tax-exempt status for that year.