Pension minimum drawdowns double from 1 July 2023

Minimum super pension withdrawals are back to normal after four years of being reduced by half. What does this mean for retirees?

By John Wasiliev - 3 min read

A little about John

John Wasiliev writes on personal finance specialising in superannuation and self managed super funds, managed funds and trusts.

One superannuation rule that all retirees should know is the requirement to withdraw a minimum amount each year once they’ve begun a retirement phase income stream—also known as a superannuation pension.

I’ve certainly been familiar with this rule over the past three years. My wife and I, like many others, have taken advantage of a special concession to withdraw less from our super pension accounts than the minimum set down by the rules for regular years.

This special concession, which halved the minimum drawdown amount, was introduced in response to the COVID-19 pandemic to help preserve retirees’ savings and avoid realising potential capital losses at a time when investment markets were especially volatile.

Back to normal

The reduction has not been extended for the 2023–24 income year and onwards, and so the pension minimum drawdowns are back to normal after four years of being reduced to half.

Minimum percentages (as shown in the table below) are calculated according to your age, multiplied by your account balance as at the previous 1 July (or the date you commenced your pension if after 1 July).

Compulsory pension drawdown rate

Age	2019–20 to 2022–23 income years (inclusive)	2023–24 income year
Under 65	2.0%	4.0%
65 - 74	2.5%	5.0%
75 - 79	3.0%	6.0%
80 - 84	3.5%	7.0%
85 - 89	4.5%	9.0%
90 - 94	5.5%	11.0%
95 and over	7%	14.0%

Source: Australian Taxation Office

Now that the concessions have come to an end, it’s a good time to reflect on how much we should be drawing from our super pensions in future. There are two basic choices:

• either withdraw at the minimum percentages, which has reverted back to the ‘normal’
• or withdraw at a percentage higher than the minimum.

Sticking with the minimum withdrawal

Withdrawing only the minimum required amount from your super pension means you maximise the amount of money that remains invested in your super pension account. This may be appropriate for you, especially if you have other sources of income in retirement.

This may bring tax advantages as any earnings and capital gains on investments held in a super pension are tax free, whereas investment earnings held outside super are taxed at your marginal tax rate.

In practice, as a senior, you may not need to pay much tax on investments outside super, either. The tax-free threshold for Australian residents in the 2023-24 financial year is $18,200.¹ This means, in general, that your taxable income (including investment earnings and capital gains) would have to be above that amount—after any seniors and pensioners tax offset is applied—before you were liable to pay income tax.

Another key advantage of holding money inside your super pension is that the funds are invested in a professionally managed portfolio, which may have the potential to deliver greater investment returns than holding money outside super in cash or term deposits, for example.

Withdrawing more

As mentioned above, factors such as your account balance and age determine the dollar amount you get when you draw the minimum from your super pension. You may wish to withdraw more if you find this amount, plus any pension entitlements, is insufficient for you to pay for your lifestyle.

The Government has been particularly focused in on the significant portion of retirees passing away with material super balances leaving an inheritance, rather than withdrawing more and improving their lifestyle in retirement.

You’ve worked hard to save your nest egg that provides an income in retirement—why not enjoy it now?

Everyone is different, so it’s important to understand the rules that apply to your super pension, as you decide what works for you.

 

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1 Individual income tax rates, Australian Taxation Office.

The views and opinions expressed in this article are those of the author and do not purport to reflect the views and opinions of Russell Investments.

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