When you use your superannuation to start a retirement income stream, you are required to make a minimum withdrawal from this super pension each financial year.
The minimum withdrawal amount is determined by your account balance and age. But there’s a few other things to consider, too.
Minimum Super Withdrawal
When your superannuation is in accumulation phase, you are not required to make any withdrawals from your account, even if you are retired. However, once you use some or all of your accumulation balance to start an account based pension, you must withdraw a minimum level of pension income each year.
The minimum drawdown from a superannuation pension income stream for the 2022/2023 financial year is calculated by multiplying your pension balance by the minimum drawdown rate.
Related article: Minimum Pension Drawdown
Superannuation Drawdown Rates
The minimum superannuation pension drawdown rates are based on your age, as shown in the table below.
|Age||Standard Minimum Percentage Factor||Reduced Minimum Percentage Factor (2020 - 2023 FY inclusive)|
|Below Age 65||4%||2%|
|65 - 74||5%||2.50%|
|75 - 79||6%||3%|
|80 - 84||7%||3.50%|
|85 - 89||9%||4.50%|
|90 - 94||11%||5.50%|
|Age 95 and above||14%||7%|
Pension Drawdown Rules
There are a few rules to consider when calculating the superannuation pension minimum withdrawal amount.
The date of the calculation to determine the minimum pension dollar amount is by multiplying your 1 July pension balance by the minimum percentage factor, above. This is then recalculated on 1 July of each subsequent financial year. Should you commence an income stream part-way through the year, then the minimum pension amount is calculated based on the capital amount used to commence the pension and then each subsequent 1 July.
The minimum account based pension calculation is done once per financial year and applies for the whole of the financial year. The frequency of pension payments does not impact the minimum pension amount. Whether you receive pension payments fortnightly, monthly, half-yearly or once per year (or any other frequency), the minimum amount to be withdrawn for the year will remain the same.
The temporary minimum pension factor 50% reduction finished at the end of the 2022/2023 financial year. That is, from 1 July 2023, the minimum pension factor will return to the standard payment rates.
If you start a pension income stream part-way through a financial year, you are not required to withdraw the full minimum pension amount from your superannuation income stream.
The minimum pension drawdown for a year where you commenced the pension part-way through the year is calculated as pro-rata, based on the pension starting value, multiplied by the minimum pension percentage factor, multiplied by the remaining days in the financial year (from the date the pension commenced), divided by days in the year.
Minimum Pension = (Pension Purchase Price x Pension Factor) x (days remaining in financial year divided by days in FY)
If you close down a pension income stream or commute it part-way through a year, you will need to ensure that the minimum required pro-rata pension payment is still satisfied prior to the pension being closed.
When calculating the minimum pension payment, based on the account balance multiplied by the minimum percentage factor, the amount arrived at is rounded up or down to the nearest $10, with anything five or above rounded up.
Minimum Pension Withdrawal Example
Here’s a few examples of how the superannuation pension minimum withdrawal is calculated.
If you start a new income stream at age 64 on 1 July 2023 with $500,000, then your minimum pension amount would be calculated as:
Minimum pension = $500,000 x 4% = $20,000
You would need to withdraw a total of $20,000* in pension payments throughout the 2023/2024 financial year.
Let’s say you, instead, began the pension at age 64 on 1 August 2023, using $500,000. The minimum pension would be calculated as:
Minimum pension = ($500,000 x 4%) x (334 divided by 365) = $18,301 ($18,300* after rounding to the nearest $10).
What if you began the pension at age 71 with $425,000 on 1 January 2024? Then the calculation would be:
Minimum pension = ($500,000 x 5%) x (181 divided by 365) = $12,397 ($12,400* after rounding to the nearest $10).
Learn more: Pension From Super
SMSF Minimum Pension
The minimum pension payment for an account based pension held within a self managed superannuation fund (SMSF) is calculated in the same manner as detailed above.
It is the responsibility of the SMSF trustees to ensure that the minimum pension standards are satisfied each financial year.
Minimum Pension Withdrawal Calculator
You can use the calculator below to determine the minimum amount of pension to be drawn each year, based on your age and account balance.
The minimum drawdown rates for a superannuation pension are designed to force retirees to spend their retirement savings, or at least reduce the amount invested in the tax-free pension phase of superannuation. If you do not require superannuation pension income in order to cover living expenses, you might consider contributing the pension payments back into superannuation (if eligible due to age and contribution cap limits), or commuting your pension back to accumulation phase. However, it should be noted that earnings from investments within the accumulation phase are taxed at 15%, compared to 0% within the pension phase.
Watch this video on the tax you pay inside super:
If you’re unsure whether or not you should be accessing your super , our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead-up to retirement. If you’re interested in learning more about our service and cost, click here.
Discover More Content on SuperGuy: