Minimum drawdown
The percentage of your pension balance you must withdraw each year to keep its tax-free status.
Retirement phase income streams carry a compulsory minimum withdrawal, calculated as a percentage of the balance at 1 July each year. The percentage rises with age.
Rates start at around 4% for those under 65 and increase in steps, reaching substantially higher percentages in later decades of life.
Failing to withdraw the minimum can cost the account its retirement phase status for the year, meaning earnings become taxable — an expensive administrative oversight.
The calculation uses the balance at 1 July, or the commencement balance in the first year, pro-rated for the part of the year the pension existed. Funds generally calculate and notify the figure, but the obligation to withdraw it remains yours.
Calculating the minimum
A 67-year-old with $600,000 at 1 July facing a 5% minimum must withdraw at least $30,000 across the year to preserve the tax-free treatment.
The bit people get wrong
The minimum is compulsory, not a target. You must withdraw it even if you do not need the money, though nothing prevents you from reinvesting it outside super.
Common questions
What if I do not need the income?
You must still withdraw the minimum, but you can invest it outside super. Recontributing may be possible if you remain eligible to contribute.
Can I withdraw more than the minimum?
Yes, there is no maximum on an account-based pension once you have met a full condition of release. Transition to retirement pensions do have a maximum.
Are the rates ever reduced?
Governments have temporarily halved minimum rates during market downturns to avoid forcing withdrawals at depressed values.