Minimum drawdown rates explained:
How much, how fast?
The minimum drawdown rates for income payments from super are about to double. We mentioned this last week in our overall Federal Budget coverage. But because it can have such an impact on your retirement savings, we didn’t want this major change to go unnoticed.
Read on for a brief explainer of what super drawdowns are and how these changes may affect you.
What are minimum drawdowns?
These are the legislated minimum annual payments for super income streams within a financial year. They are applicable to pensions or annuities that have been commenced on or after 1 July 2007. Superannuation and annuity providers calculate this minimum annual payment on 1 July each year, based on the account balance of the member or annuitant.
To assist retirees during the volatile economic conditions during the Covid-19 pandemic, a temporary reduction in this amount was announced on 25 March 2020 by the Morrison Government. The 50% reduction applied to Account-Based Pensions, allocated pensions, market-linked pensions and annuities for the 2019–20, 2020–21, 2021–22 and 2022-23 financial years.
Why are they now doubling?
As explained above, the drawdown amount was halved in the financial years 2019-2020, 2020-2021, 2021-2022 and 2022-2023. This was a temporary reduction to take into account the ongoing effect of Covid-19 restrictions and lockdowns. Most households were able to save extra money during this period as there were drastically reduced opportunities to spend on consumer goods, entertainment, holidays and home improvement. With the pandemic now officially ‘over’ (at least according to the World Health Organisation) and normal activities largely resumed, the reduction is now due to end, with a return to the full percentage drawdowns on 1 July.
| Age at 1 July | New (standard) minimum drawdown rates from 1 July 2023 | Previous (temporary 50%) drawdown rates until 30 June 2023 |
| 60-64 | 4% | 2% |
| 65-74 | 5% | 2.5% |
| 75-79 | 6% | 3% |
| 80-84 | 7% | 3.5% |
| 85-89 | 9% | 4.5% |
| 90-94 | 11% | 5.5% |
| 95 or over | 14% | 7% |
How will this affect your retirement income?
As noted above, with the exception of Transition to Retirement (TTR) pensions, there is no mandatory maximum withdrawal level for those receiving income streams from their super. The minimum amount is about to be higher, but it still remains below 10% of your 1 July account balance for all superannuants below 90 years of age. So around 90% of your savings can remain in super if you so desire. The challenge, of course, is working out how long your savings will last and planning for the transition to an Age Pension if these savings do fall within the asset thresholds. Happily there are useful tools to allow you to project this occurrence well in advance. If you are keen to see how the above drawdown levels (or any other amounts) will affect your super you may benefit from a consultation using the Retirement Essentials Retirement Forecaster in real time. It’s a really helpful way to better understand your spending options across the course of your retirement journey.
Or you may have some more specific questions that you want help with to determine how an alternative strategy could affect your financial position and your ability to achieve your goals. Retirement Essentials offers adviser-led strategy consultations on a range of topics. In these meetings you are able to join one of our financial advisers online where they assess your current situation and show you what an alternative option may look like. Click on one of the links below to book a strategy consultation.
- Retirement Forecasting (understanding spending options during your retirement journey, followed up with a tailored strategy paper).
- Understanding more about super (there are many options available to maximise income or wellbeing).
- Maximising your entitlements (making the most of your financial resources and Centrelink)
- Understand impacts of your home mortgage (consider your retirement journey options)
- Younger Spouse strategy (How moving assets to a younger spouse’s super can increase your entitlements)
My husband & I are on part age pensions based on the income test. Will the pension funds notifiy Centrelink automatically to let them know the increased minimum drawdown amount for us? Or, will we have to notify Centrelink after receiving confirmation from the pension funds? We don’t want to be overpaid by Centrelink?
Hi Janet, great question, thanks for asking! Pension funds do notify Centrelink, usually in March and September each year, so you can just leave it and wait for them to do it or if you are concerned you can request a “Centrelink Schedule” from your pension fund and then lodge this to Centrelink so they are updated sooner rather then later. You will not be penalised if you do not proactively update Centrelink though so it is entirely up to you.
If you change your Super draw down amount yourself ie to higher than the minimum, do you need to notify Centrelink, or just wait for the March/September cycle?
Hi Mark, thanks for joining the conversation! As I explained to Janet, you can leave it and wait for your super fund to do it or if you are concerned you can request a “Centrelink Schedule” from them, and then lodge this to Centrelink so they are updated sooner rather then later. You will not be penalised if you do not proactively update Centrelink though so it is entirely up to you.
Can I put 50% of my balance in pension phase back into accumulation so as to reduce the Min drawdown.Ge
Hi Geoff, thank you for seeking our guidance! To understand your options and the pros/cons of each it would be best to book one of our Understanding More About Super consultations. As with most of the topics we discuss there ifs, buts and maybes so we’d need to understand your specific situation to support you to make the best decision. CLICK HERE to make a booking.
I have got used to living with the reduced pension payments. With the drawdown doubled I will have money that I do not wish to spend. Can it be reinvested back into my super fund? And what are the administrative, taxation and other implications of doing so? Or is it a matter of investing the extra pension in some form of term deposit, for instance.
Your thoughts would be welcome.
Hi Michael, thank you for seeking our support! We can definitely help provide you guidance to understand each of your options and the pros/cons of each. Book one of our Understanding More About Super consultations HERE.
Hi , I am 74 and my wife is 62 ,we both receive the full aged pension plus I receive the minimum allowed super withdrawal each year
Although my wife is under the pension age she receives the pension as I have a DVA TPI disability pension
My wife’s super is still in accumulation mode. She shortly will receive approximately an inheritance of $300,000 .She intends to deposit this amount into her super account to avoid the assets test .We intend to downsize our home of 13 years to move into a retirement village .She will need this money to help pay for the retirement home
My question is ,will her super be still in accumulation mode after this withdrawal
HI Chris, thank you for articulating your situation and question so well! It is of course best to ask her super fund of any rules/conditions but generally speaking she should be fine to make a withdrawal and leave the remaining amount still in accumulation.
The money you get from the draw down on your super fund will this reduce the amount of pension you receive
Hi Neville thank you for your comment! We have written previously about how account based pensions work and how Centrelink assess them. CLICK HERE to learn more.
Hi,
I have been encouraging my son to go hard on Super because he is young, he will have circa $30,000 this July at 21.
My question (and I know that you don’t have a crystal ball) is, if his goal in the next 46 years is to invest and collect $2-4 million will he be able to take that as a lump sum and reinvest or does he have to take it as a fixed drawdown?
Hi Steven, my name is also Steven, two stevens can’t make a wrong! It is great to hear you are trying to get your son prepared at such a young age! The rules around super do come with a few ifs, buts and maybes so to properly guide you and your son on the options available and the pros/cons of each, I’d recommend you book one of our Understanding More About Super consultations. If you prefer your son can either sit in with you or make a booking of his own. CLICK HERE to check our availability.
As per Chris’s question if i am above preservation age (60) but under pension age single or couple and was to draw 300K out of my accumulation account doesn’t centrelink then count the remaining super as an asset because i have withdrawn this amount and have activated a drawdown from this account or does it stay in accumulation after a withdrawl?? i was under the impression that once you start withdrawing super it will be counted by centrelink.
Hi Steve, thanks for reaching out! Technically the rule is that if your super is in accumulation and you are under Age Pension age then it is exempt. It only becomes assessable when you convert it to an account-based pension. Obviously the funds you draw out would become assessable once they hit your bank account though.
Drawdowns based on my Jun’23 balance are paid in Aug’23 by my fund. Will this be subject to the standard or temporary 50% minimum drawdown? Thanks
Thank you for your question. You will need to speak to your superannuation fund about whether this payment falls under the current temporary 50% minimum drawdown.
How much do you charge for the consultation
Hi Adil, thanks for enquiring on our costs. The cost depends on the type of consultation that you book. You can review each of them HERE.
My super draw down is going to 5%, why is my monthly payment higher than 5%
I have 1 million in super,I calculate 5% being $50.000: I’m receiving $78.000!!!!
Hi Alanna, there could be a couple of reasons for this. I would suggest initially giving your super pension provider a call might help identify why this is the case, and to also check what instructions are set up on your account. However if you are still having trouble, I would be happy to discuss how the super rules work and the minimum is calculated etc, in one of our general advice consultations which can be scheduled here. Thanks, Megan