Account-Based Pension Minimum Drawdowns
Once you start an account-based pension from your super, you must withdraw a minimum amount each year. Getting your drawdown strategy right is critical to making your super last through retirement while enjoying tax-free income.
Minimum Drawdown Rates by Age
The government sets minimum annual withdrawal percentages based on your age at 1 July each year. These minimums ensure that retirement-phase super is actually used for retirement income, rather than being indefinitely preserved as a tax-free investment vehicle. There is no maximum withdrawal -- you can take out as much as you like at any time.
The minimum percentage is applied to your account balance at 1 July (or the date you start the pension if it's during the financial year). As you age, the minimum percentage increases, reflecting the expectation that you'll draw down your balance more rapidly in later years.
Standard Minimum Drawdown Rates
- Under 65: 4%
- 65 to 74: 5%
- 75 to 79: 6%
- 80 to 84: 7%
- 85 to 89: 9%
- 90 to 94: 11%
- 95 and over: 14%
These are the standard rates that apply from 1 July 2023 onwards, following the end of the temporary COVID-era halving of minimum drawdowns.
During the COVID-19 pandemic, the government temporarily halved the minimum drawdown rates to reduce the need for retirees to sell investments in a falling market. This measure was in place from 2019-20 through to 2022-23. From 2023-24 onwards, the standard rates have been fully restored.
How the Minimum Is Calculated
The minimum drawdown is calculated by multiplying your account balance at 1 July by the applicable percentage for your age. If you start a pension partway through the year, the minimum is pro-rated based on the number of days remaining in the financial year.
Example: Minimum Drawdown Calculations
Margaret, age 67, balance $800,000 at 1 July:
Minimum rate: 5%. Minimum drawdown = $800,000 x 5% = $40,000 for the year.
Robert, age 72, starts pension on 1 January (182 days remaining):
Balance at start: $600,000. Standard minimum: 5% = $30,000. Pro-rated: $30,000 x 182/365 = $14,959 for the part-year.
If you fail to withdraw the minimum amount by 30 June, the pension may be deemed to have ceased, which can have serious tax consequences. The account could revert to accumulation phase, losing the tax-free status on investment earnings. In practice, most super funds have systems to ensure minimum payments are made before the deadline.
What Counts Towards the Minimum
Regular pension payments, lump-sum withdrawals, and any other amounts paid from the pension account all count towards satisfying the minimum drawdown requirement. You don't need to set up a regular payment schedule -- a single withdrawal at any point during the year can satisfy the requirement, as long as the total withdrawn meets or exceeds the minimum.
Tax-Free Income Over 60
One of the most significant benefits of an account-based pension is the tax treatment of withdrawals. If you're aged 60 or over, all pension payments from a taxed super fund are completely tax-free. This means your minimum drawdown (and any additional withdrawals) come to you with no income tax payable.
Furthermore, investment earnings on assets supporting the pension are also tax-free within the fund. This is a substantial advantage compared to the accumulation phase, where earnings are taxed at 15%, and especially compared to investments held outside super, where earnings are taxed at your marginal rate.
Under 60: If you're between preservation age and 60 (for example, if you started a transition-to-retirement pension), pension payments are not tax-free. The taxable component is added to your assessable income but receives a 15% tax offset. Once you turn 60, payments become fully tax-free.
Strategies for Making Your Super Last
The minimum drawdown rates are just that -- minimums. The real question is how much you should withdraw each year to balance your lifestyle needs against the risk of running out of money. Withdrawing too much too early is the biggest risk to retirement income sustainability.
Withdraw Only the Minimum in Early Retirement
If you have other income sources in early retirement (such as part-time work, rental income, or savings outside super), consider drawing only the minimum from your pension. This preserves your capital and gives it more time to grow in the tax-free pension environment. The longer your money stays invested, the more compound returns work in your favour.
Consider the Bucket Strategy
Some retirees use a "bucket" approach: keep one to two years of living expenses in cash or short-term investments within their pension for immediate needs, with the remainder invested for growth. This provides peace of mind during market downturns, as you won't need to sell growth assets to fund day-to-day living expenses.
Review Annually
Your drawdown needs will change over time. Expenses often decrease in later retirement (less travel, fewer activities) before potentially increasing again if aged care is needed. An annual review of your withdrawal rate against your remaining balance and expected lifespan helps ensure you're on track.
Example: The Impact of Drawdown Rate on Longevity
Helen retires at 67 with $700,000 in her pension account, earning 6% per annum.
Drawing the minimum (5%): $35,000/year initially. Balance lasts approximately 28 years (to age 95).
Drawing 7%: $49,000/year initially. Balance lasts approximately 19 years (to age 86).
Drawing 9%: $63,000/year initially. Balance lasts approximately 14 years (to age 81).
The difference between drawing 5% and 9% is over 14 years of income. This illustrates why drawdown strategy matters enormously.
How Talk Through Wealth Helps
Getting your drawdown strategy right requires projecting your balance forward under different scenarios. Talk Through Wealth makes this easy to visualise and plan.
- Project how long your super will last under different drawdown rates
- Model the impact of market returns on your pension sustainability
- Calculate minimum drawdown amounts for each year of retirement
- Optimise withdrawals to maximise Age Pension entitlements
- Plan for changing expenses across different retirement phases
Plan Your Retirement Drawdown Strategy
See how different withdrawal rates affect the longevity of your super.
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