However, Michael Hallinan, special counsel superannuation for SUPERCentral, said there are two ways for individuals to start a pension without having to do this.

He said the first way is if the pension is a transition to a retirement pension.

“As these pensions do not receive the earnings tax exemption, the transfer balance account rules do not apply and the transfer balance cap is not relevant,” he said. “Consequently, it is possible to commence a transition to retirement pension even with an account balance of $2.5 million.”

He added the primary benefit of using this method is to access the pension account when it is still preserved.

“If the member has attained age 60 by the time the pension commences, they can access between $100,000 to $250,000 tax-free pension payments,” he said.

He added these amounts are based on the minimum drawdown rates that a transition to retirement pension must satisfy.

Once the member reaches 65, the transition to retirement pension will be entitled to the earnings tax exemption.

“From this point, the transfer balance account rules will apply, and the transfer balance cap rules will also apply to the pension,” he said.

“This may result in the pension having an excess transfer amount and the pension will have to be partially rolled back or cashed out to remove the excess amount.”

The second way to start a pension if the pension account balance exceeds $1.9 million is if the member has a negative transfer balance account before the pension commences.

Mr Hallinan said this can happen if the member has previously commenced a retirement phase pension which has exhausted the transfer balance cap and the pension is then rolled over.

He gave an example of a member, with a pension balance of $1.9 million, who started an account-based pension when they reached the age of 65.

“This was their first pension, and the start of the account-based pension will cause the ATO to open a transfer balance account for them which will be $1.9 million and exhaust their transfer balance account cap space,” he said.

“Because this individual has made good investments, and drawn down the minimum pension as required, after three years their pension account has grown to $2.3 million.

“As the minimum drawdowns increase, they will exceed the earnings growth and the account balance will decline, so the member decides to rollover their pension to another superannuation fund with the commutation occurring on 30 June 2026 and the new pension issued on 1 July 2026.”

Mr Hallinan said the pension must first be fully commuted and the lump sum arising from that paid to the other superannuation fund as a fund-to-fund contribution, or transfer.

“Once the contribution has been received in the new fund, a new pension is commenced,” he said.

“For transfer balance account purposes, the commutation of the pension will give rise to a transfer balance debit of $2.3 million and the commencement of the new pension in the new fund will give rise to transfer balance credit of $2.3 million.”