SMSFs: Minimum account-based pension payments, strategies and calculator

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. 

Once you start an account-based pension, 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	Temporary percentage factor (2019–20 to 2022–23)	Normal percentage factor (From 1 July 2023)
Under 65	2%	4%
65 to 74	2.5%	5%
75 to 79	3%	6%
80 to 84	3.5%	7%
85 to 89	4.5%	9%
90 to 94	5.5%	11%
95 or more	7%	14%

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).

Pension planning tips and strategies

If you have been drawing the minimum pension payments prior to 1 July 2023, you will need to ensure you have sufficient cash flow to support higher minimum payments in 2023–24. If not, you may need to review your investment strategy and allocate more assets to short-term cash investments.

Some retirees may find the new minimum pension payment is more than they need. If so, you have options.

• If you are under 75, you could reinvest payments you don’t need in an accumulation account. If your total super balance is under the transfer balance cap (currently $1.7 million and increasing to $1.9 million from 1 July 2023), you can make non-concessional contributions until you turn 75. There is no longer any need to meet a work test to make this type of contribution.
• If you can’t make super contributions but want to keep money in super, you could consider commuting (ceasing) your pension, transferring your pension balance to the accumulation phase and starting a new pension with a lower balance. A pension with a lower balance also has a lower minimum withdrawal.

Lastly, don’t feel you have to set your pension payment strategy in stone on July 1 when the new year’s minimum is calculated. You can change the amount of your payment during the financial year, provided you meet the minimum annual withdrawal requirements.

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.

SMSF trustees need to be vigilant and arrange for the minimum pension payment to be made each year. As the minimum annual drawdowns revert to normal in 2023–24, it’s crucial to check you are meeting the minimum requirements when you set your pension payments at the start of the new financial year.  

Does the minimum drawdown affect my Age Pension?

The amount of Age Pension you receive is determined by the income test and assets test.

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 super (and the generous tax concessions it receives) is designed to provide retirement income and for your balances to eventually run out. 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
• If the minimum, annual payment is not made
• If 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, referred to as a reversionary beneficiary.

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 an account-based 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 first financial year.

The bottom line

The government’s temporary halving of the minimum pension drawdown rates gave retirees with account-based super pensions more flexibility in the management of their pension assets while investment markets were volatile.

The return to normal minimum pension drawdown rates in 2023–24 may require some SMSF trustees with pension accounts 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.