Retirees who draw an account-based pension from their super need to be aware that the 50% reduction in the minimum pension drawdown rate which applied for previous years will no longer apply from 1 July 2023. The 50% reduction in minimum annual payment amounts for superannuation pensions and annuities was introduced as a temporary measure as a response to the pandemic negatively impacting super and pension/annuity balances. It applied for the 2019-20 to 2022-23 income years.
By way of background, most income streams paid from a super account held in an individual’s name (ie the member) are account-based pensions. These pensions are required to meet minimum standards, including not being able to increase the capital supporting the pension using contributions or rollover amounts once the pension has commenced, and paying a minimum amount at least once a year. In general, minimum payments are determined by 2 factors: age of the beneficiary – the age of the beneficiary is determined at either the 1 July in the financial year in which the payment is made, or the commencement day of the pension or annuity if that is the year in which it commences.
Account balance of superannuation or annuity is determined as at 1 July in the financial year in which the payment is made, or by the balance on the pension commencement day (if the pension commenced during the financial year), or the amount of the withdrawal benefit (if the amount of the pension account balance is less than the withdrawal benefit that the member would be entitled to if the pension were to be fully commuted). For the 2023-24 financial year, the following standard percentage factor will apply: 0-64 years of age: 4%; 65-74 years of age: 5%; 75-79 years of age: 6%; 80-84 years of age: 7%; 85-89 years of age: 9%; 90-94 years of age: 11%; 95+ years: 14%.
Example: Trevor is 70 years old and decides to retire on 1 July 2023. On that date, Trevor’s super account balance was determined to be $800,000. The minimum drawdown rate according to Trevor’s age is 5%, therefore the required annual minimum pension payment for the 2023-24 income year is $40,000 ($800,000 x 5%). If the pension is commenced on another date during the income year, it will need to be apportioned by the number of days remaining in the year. So had Trevor commenced the pension on 1 January 2024 instead, the required annual minimum pension payment for 2023-24 would be $20,000 ($8000 x 5% x 182 days/365 days). In addition, it should be noted that any pension commenced on or after 1 June in a financial year will not be subject to minimum payment requirements for that specific financial year. Therefore, if Trevor in the above example decided to commence his account-based pension on 1 June 2024 instead of 1 July 2023, no minimum payment is required from the pension.
While the minimum annual payments are mandated, there are no maximum annual payments, except for transition to retirement pensions which have a maximum annual payment limit of 10% of the account balance at the start of each financial year. This means that retirees can draw a pension above the minimum pension payment amount, especially due to the current cost of living pressures.
Speak to one of our accountants if you have any questions about the changes in the minimum pension payments.
