Minimum pension payments, also known as minimum drawdown rates, are the amounts set by the government that you must withdraw from your account-based pension or other super income streams each financial year. These rates vary based on your age and increase as you grow older, ensuring that retirees gradually access their retirement savings.

How Are Minimum Pension Payments Determined?

The calculation of minimum pension payments is based on your age and account balance. These calculations are made at the beginning of your pension and are reviewed each year on July 1. The table below outlines the standard minimum percentages according to age:

These percentages ensure that as you age, you withdraw a larger proportion of your retirement savings.

Minimum Pension Payments in the Initial Year

In the first year of starting an account-based pension, your minimum payments will depend on the time remaining in the financial year. Here’s an example to clarify:

Example:

• Patrick, aged 65, begins an account-based pension on April 1 with $200,000.

• his minimum drawdown rate is 5%.

• With 91 days left in the financial year, his minimum payment is adjusted accordingly.

Calculation:

Patrick must receive at least $2,490 in pension payments before the end of the financial year. He can choose to receive more if he wishes. If Patrick had started his pension in June, he could opt not to take any pension payments that month.

Minimum Pension Payments for Full Financial Years

For each full financial year, minimum pension payments are calculated based on your account balance as of July 1 and the applicable age-based percentage.

Example:

• Tyson, aged 75, has an account-based pension with a balance of $300,000 on July 1.

• His minimum drawdown rate is 6%.

Calculation:

Tyson must receive at least $18,000 in pension payments over the financial year. He can opt to withdraw more if desired.

Maximum Pension Payments

While there is no cap on how much you can withdraw from an account-based pension, you are limited by your account balance. For transition to retirement (TTR) pensions, there is a maximum annual withdrawal limit of 10% until you turn 65 or meet another condition of release, such as retiring at age 60.

Exceeding the Minimum Pension Amount

You have the flexibility to withdraw more than the minimum required amount from your pension. Account-based pensions allow you to choose the frequency and amount of your payments, as long as the minimum drawdown is met. You can also take extra amounts as lump sums or increase your regular payments.

FirstChoice Wholesale Pension Product

For those nearing retirement, the FirstChoice Wholesale Pension is a versatile and tax-effective option to convert super benefits into a steady income stream. It provides a flexible way to manage your retirement funds efficiently.

Pension Payments vs. Lump Sum Withdrawals

The impact of additional pension payments and lump sum withdrawals differs in terms of tax and social security:

• Pension Payments: These count towards your minimum drawdown amount. If you are under 60, the taxable portion is taxed at your marginal rate. For those 60 and over, these payments are tax-free.

• Lump Sum Withdrawals: These do not count towards the minimum drawdown. For those under 60, the taxable component is taxed at a lower rate. For those 60 and over, these withdrawals are tax-free and reduce your transfer balance amount.

Social Security Considerations

For account-based pensions commenced before January 1, 2015, additional pension payments are treated as income in the financial year they are made. Lump sum withdrawals will reduce the Centrelink deductible amount permanently, impacting social security benefits.

Reviewing Your Retirement Plan

If you’re unsure about how minimum pension payments affect your retirement strategy, consulting with a financial adviser can provide clarity. They can review your personal circumstances and help you find the best solution for your life stage, financial goals, and risk tolerance.

For personalised advice, consider using our find an adviser service to locate a financial advisor near you. This ensures you make informed decisions about your retirement savings and enjoy peace of mind knowing your future is secure.