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Once you retire and reach your preservation age you can start to withdraw your super as an income stream, a lump sum or both. Most retirees choose to take at least part of their super as an income stream because it provides them with regular tax-free payments until their money runs out.
A super income stream, also called a super pension or annuity, simply refers to regular periodic payments you receive from your super fund once you retire or satisfy a condition of release.
To start a super income stream, you need to transfer money from your super accumulation account into a retirement account up to the transfer balance cap which rose from $1.7 million in 2022–23 to $1.9 million from 1 July 2023 due to indexation.
Once you start a retirement income stream, minimum annual payments are calculated on your account balance on 1 July each year, multiplied by a percentage factor that increases as you age. This is often referred to as the minimum pension drawdown.
Minimum pension payment rates
|Age of beneficiary
|Normal percentage factor
(From 1 July 2023)
|Temporary percentage factor
(2019–20 to 2022–23)
|65 to 74
|75 to 79
|80 to 84
|85 to 89
|90 to 94
|95 or more
Source: SIS Act
Payments must be received at least annually between 1 July and 30 June each financial year, although many retirees opt to receive monthly or quarterly payments. Annual payment amounts are rounded to the nearest ten whole dollars. If the amount ends in an exact five dollars, it is rounded up to the next whole ten dollars.
Minimum pension payment calculator
Our calculator below estimates your minimum pension payment amount.
Enter your age and pension balance in the yellow fields as at 1 July and the calculator will display your annual minimum pension payment amount for that financial year (1 July to 30 June).
What is an account-based pension?
Most super pensions these days are account-based (also called allocated pensions), so called because the pension is paid from a super account held in your name.
For SMSFs with account-based pensions, the amount supporting the pension must be allocated to a separate account for each member.
However, some government defined benefit super schemes or annuities paid by life insurance companies offer non-account-based pensions where you agree that your fund will pay you a regular income over a set period, usually guaranteed for life or a fixed term. Unlike account-based pensions, the income stream does not have an identifiable account balance in the member’s name.
There is still a minimum annual withdrawal that is worked out by multiplying the purchase price of the income stream by your age-based percentage factor. In the first year you take the member’s age at the start of the income stream. In subsequent years, you take the member’s age on each anniversary of the start day. These pensions are not affected by the temporary reduction in minimum drawdown rates.
What if I don’t withdraw the minimum pension amount?
Minimum pension withdrawals are mandated by the government. If you fail to comply, your super pension could lose its tax-free status.
If your super is with a large fund, it’s likely your minimum payments will be adjusted automatically each year.
If you have an SMSF, you need to be vigilant and arrange for the minimum pension payment to be made each year or risk losing the tax-free status of your pension.
Does the minimum drawdown affect my Age Pension?
The income test is not affected by the amount you withdraw from your super pension, as Centrelink applies the deeming rules to estimate your super pension income.
However, the assets test includes your total super balance and assets outside super. This presents an opportunity for retirees whose assets are only slightly above the Age Pension threshold, as the more you withdraw from your super the more Age Pension you may be entitled to receive.
Why does the government set a minimum payment?
The reason for setting minimum annual payments is to satisfy the sole purpose test. That is, that superannuation (and the generous tax concessions it receives) is designed to provide retirement income. It’s not designed as a tax-effective way to transfer wealth to the next generation.
The percentage factor – normally beginning at 4% and rising to 14% as you age – is generally considered a safe amount for retirees to withdraw annually while maintaining an account balance that will keep the income flowing through retirement. As it’s impossible to know how long any individual will live, these amounts are based on the average lifespan for Australians who reach age 65, 75, 80, 85, 90 and 95.
Your super income stream will stop:
- When there’s no money left in the account
- No minimum payment is made
- It is commuted (converted) into a lump sum
- When you die, unless you have a dependent beneficiary who is automatically entitled to receive the income stream.
There is no maximum annual drawdown other than the balance of your account, unless it is a Transition-to-Retirement (TTR) Pension that is not in retirement phase, in which case the maximum amount is 10% of your pension account balance.
Calculating the first payment
If you start a super pension after 1 July, the minimum amount for the first year is calculated on a pro-rata basis according to the number of days remaining in the financial year, including the start day (see example below).
If your super pension commences on or after 1 June, no payment is required in that financial year.
The government’s temporary halving of the minimum pension drawdown rates gave retirees with account-based super pensions and similar products more flexibility in the management of their pension assets while investment markets were volatile.
The return to normal pension drawdown rates in 2023–24 may require some retirees to adjust their cashflow planning and retirement income strategy. Retirees affected by this adjustment may benefit from seeking independent financial advice to determine the best pension strategy for their circumstances.