The Federal Government initially reduced the minimum drawdown rates in March 2020 in response to COVID-19’s impact on investment markets for the 2019/2020 and 2020/2021 financial years. Subsequently, these reduced drawdown rates were extended again in May 2021 for the 2021/2022 financial year, and we can now happily report that they have been extended to include 2022/2023.
Reduced minimum rates provide the option to manage your income payments with greater flexibility, helping to ensure that surplus income is not obliged to be drawn from pension assets and thereby remain within the tax-sheltered environment that is an Account Based (or Allocated) Pension.
How it works
It enables retirees to preserve their capital without the need to sell assets at depressed prices during times of market weakness. The Federal Government first introduced such a change in 2008 with the onset of the Global Financial Crisis (GFC) and these reduced minimums remained in place until the end of the 2012/2013 financial year.
An Account Based or Allocated Pension is funded from superannuation assets once you retire or satisfy a condition of release up to the ‘transfer balance cap’ of $1.7 million.
Once this retirement income stream has commenced, minimum annual payments are calculated on your account balance on 1 July each year and multiplied by a percentage factor that increases as you get older.
The minimum amounts you must withdraw each financial year under the temporary arrangements are set out in the table below, alongside the standard drawdown rates.
Minimum pension payment rates
| Age of recipient | Temporary drawdown rates (2019-20 to 2022-23) | Normal drawdown rates (2013-14 to 2018-19) |
| Under 65 | 2% | 4% |
| 65 – 74 | 2.5% | 5% |
| 75 – 79 | 3% | 6% |
| 80 – 84 | 3.5% | 7% |
| 85 – 89 | 4.5% | 9% |
| 90 – 94 | 5.5% | 11% |
| 95+ | 7% | 14% |
Source: SIS Act
Why are the rates set?
The purpose of setting minimum annual payments is to satisfy the sole purpose test. This means that superannuation, and the generous tax concessions it receives, is designed to provide retirement income rather than be a tax-effective way to transfer wealth to the next generation.
There are no maximum annual drawdowns unless it is a Transition to Retirement (TTR) Pension that is not in the retirement phase, in which case, the maximum amount is 10% of your pension account balance.
The government’s continued temporary halving of minimum pension drawdown rates will give retirees with Account Based Pensions more flexibility in the management of their pension assets while investment markets remain volatile.
We would recommend that current pension recipients contact their financial adviser if they are not currently utilising the reduced minimum levels and may wish to do so.
By Ben Hancock
