Minimum pension payments for account-based pensions

Pension drawdown rates

What is an account-based pension?

An account-based pension offers retirees regular, flexible and tax-effective income from their superannuation account. You might also see it referred to as an allocated pension.

Members of a Self-Managed Super Fund can also have an account-based pension, provided the payment is allocated to a separate account for each member of the fund.

You can access an account-based pension once you reach your 'preservation age' (if you did not reach age 59 by 30 June 2023, this will be age 60 and it is based on when you were born) with just a few simple choices¹.

• Decide how much you want to transfer to the pension phase.
• Choose the frequency of your payments – monthly, quarterly, half-yearly or annually.
• Choose the amount you want to receive in each payment (subject to minimum and maximum requirements).
• Consider how you want the remainder of your superannuation to continue to be invested so it keeps working hard for you.

While the pension income isn’t guaranteed for life, the income stream will continue for as long as your accumulated superannuation money does.

Why is there a minimum pension payment?

The Government sets minimum pension payment rules for one simple reason – to satisfy the sole purpose test.

The sole purpose test requires that all activities of super funds must be for the sole purpose of providing retirement benefits to their members².

It prevents super funds and their members from taking advantage of the attractive tax concessions and using superannuation as a way to transfer wealth to the next generation.

The rules

1. Pension amount

The minimum pension drawdown rates are calculated as an annual percentage of your account balance.

This percentage amount increases with age and is based on assumptions around what’s considered a sensible amount to withdraw annually while maintaining an account balance that’s enough for you to draw an income throughout retirement.

Each year, the minimum amount you will receive is recalculated based on your age and account balance as at 1 July. If you open a new pension account part way through a financial year, the minimum pension drawdown rate is pro-rated and calculated based on the number of days left until the end of the financial year.

2. Pension frequency

You can choose whether you want to receive pension payments monthly, quarterly, half-yearly or annually – whichever suits your individual circumstances.

But it’s a condition of all account-based pensions that you must receive at least one pension payment annually between 1 July and 30 June each financial year.
 

Next: How much will you need to enjoy your retirement?
 

References

1. Moneysmart Moneysmart.gov.au https://moneysmart.gov.au/retirement-income/account-based-pensions
2. SuperGuide https://www.superguide.com.au/smsfs/what-is-the-sole-purpose-test-and-how-does-it-work