Planning your account-based pension withdrawals for the new financial year

When you’re no longer earning income from work, it’s natural to worry about whether the savings you have will last for life.

Interestingly, research commissioned by the Financial Services Council estimated that retirees could draw 15–20% more than is currently typical if they are prepared to consume their super balance in retirement. This may indicate that retirees are being too conservative with their withdrawals and could afford to enjoy a better retirement lifestyle without running out of savings.

In Australia, we also have an important safety net provided by the Age Pension. If your savings reduce as you age, the Age Pension may step in to fill the gap, so long as you meet residency and other requirements.

Income and assets tests mean that more Age Pension is payable as personal savings decline, so you can often maintain the same total income while drawing a lower amount from your super pension as you age.

To investigate how sustainable your payments are, you may wish to do some modelling. QSuper provides a retirement calculator that can model your future retirement income, including Age Pension and super pension withdrawals.

The tool allocates half of your super to an account-based pension and half to a lifetime pension by default, but you can change this to reflect your position (such as 100% of your balance in an account-based pension). You may also consider using some of your savings to purchase a lifetime pension if you haven’t already.

If you need help to decide on a pension withdrawal rate you’re comfortable with and whether a lifetime pension should be part of your retirement income strategy, a financial planner can assist you.

Take the time to review your investment strategy

If you’re considering changes to your annual payments, it’s sensible to also review your investment strategy. Typically, money that is set to be withdrawn in the short term would be invested more conservatively than funds that will remain invested long term.

Options if the minimum is more than you would like to withdraw

If you’re finding your payments are too high for your needs, but can’t reduce them due to the minimum requirements, there are options available.

If you’re under 75, you can reinvest the pension payments you don’t need in a super accumulation account.

Use the super contribution eligibility checker to find out which type(s) of super contributions you’re eligible to make.

If you can’t make super contributions, but want to retain money in the super system, you might consider commuting your pension to the accumulation phase and starting a new pension with some of the balance. A pension with a lower balance also has a lower minimum withdrawal.

When can I adjust my super pension payments?

Many people take the opportunity to adjust pension payments in July when the new year’s minimum is calculated, but this is not the only option.

Generally, you can change the amount of your payment at any time, so long as the minimum annual withdrawal requirements are met. If you find yourself wanting to make changes partway through the year, simply log on to your fund’s online member portal or contact them to update your payment amount.

How changing your super pension payment affects the Age Pension

If you’re receiving the government Age Pension, you’re probably wondering how changing your super pension payment will affect it.

The answer depends on how Centrelink assesses income from your super.

If you opened your account-based super pension on or after 1 January 2015

Centrelink uses deeming rates to calculate income. The actual income you withdraw is not considered in the test. Changing your super pension payments does not immediately have any effect on your Age Pension entitlement.

Over time, changing your super pension payments can have an effect because of the impact it has on the balance of your account. Centrelink uses your balance to calculate your deemed income and includes it in the assets test.

If your super balance reduces more quickly because you’re drawing larger payments, the income and assets assessed by Centrelink will also reduce more quickly and your Age Pension payment may increase.

Conversely, if your balance reduces more slowly (or increases) because you have lowered your payments, then the income and assets assessed by Centrelink will also reduce more slowly or increase. This could reduce your Age Pension entitlement.

If you opened your account-based super pension before 1 January 2015

Centrelink will use deeming (see above) or the deductible amount method to assess income from your super pension, depending on your personal circumstances.

To be eligible for the deductible amount method, you must have been continuously receiving an income support payment from Centrelink since 1 January 2015. If this condition is not met, the deeming method is used.

If Centrelink assesses income from your super pension using the deductible amount method, changing your payments may immediately impact your Age Pension entitlement.

The bottom line

The start of a new financial year is a good time to review your account-based pension payments and make adjustments, although you can change them at any time because account-based pensions are flexible.

Account-based pension rules for retirees only specify a minimum annual withdrawal – there is no maximum. So long as you withdraw at least the minimum, the sky is the limit! Of course, the more you withdraw, the more quickly your balance will be depleted.

Help is available to model the impact of changing payments, and you may be able to withdraw more than you think without risking the sustainability of your income.

If you’ll be changing your payments, it is important to review your investment strategy and consider the potential impact on any Age Pension you are receiving.