The minimum pension payments refer to the minimum annual income that is required to be taken from a superannuation pension as a legislative requirement.
The way that the minimum pension payment is determined depends on the type of income stream and the age of the recipient.
The most common and flexible type of income stream is an Account Based Pension (also sometimes referred to as an Allocated Pension).
Note: Allocated Pensions were pensions commenced prior to 1 July 2007. However, Allocated Pensions can operate under the new minimum pension payment standards without the need to commute and start a new pension.
Minimum Pension Payments for Account Based Pensions
The minimum pension payment requirements for an account based pension is detailed in the table below:
|Age||Percentage of Account Balance|
|95 or more||14%||7%||10.5%||14%|
The reason for the reduced requirements between the 2009FY and the 2013FY is due to the Global Financial Crisis (GFC) being played out. For many people, assets need to be sold in order to make pension payments. The Government introduced temporary draw down relief, so that retirees were able to preserve some of their superannuation savings and not be required to sell assets at what would have been an unfavourable time. As you can see, the minimum requirement was reduced by 50% from 1 July 2008 – 30 June 2011 and by 25% from 1 July 2011 – 30 June 2013.
Age – As calculated at 1 July in which the payment is made OR the commencement day of the pension if the pension was commenced after 1 July
Account Balance – refers to the pension balance on 1 July of the financial year OR the purchase price of the pension if commenced after 1 July
If the pension commences after 1 July, the minimum income requirement is pro-rate based on the number of days remaining for the financial year from the day the pension commences as a proportion of the total days in the year (366 for a leap year).
No minimum pension payments are required to be taken from the pension if the pension commences after 1 June for that financial year.
Maximum Pension Payments for Account Based Pensions
There are no maximum income limits for Account based Pensions unless it is a Transition to Retirement Pension, in which case the maximum annual income limit is 10% of the account balance on 1 July of the financial year or at the commencement of the pension.
Minimum Pension Payments for Term Allocated Pensions (TAPs) / Market Linked Pensions
The minimum annual pension income required to be taken from a Term Allocated Pension is calculated by dividing the Pension balance as at 1 July of each year by the pension Payment Factor that relates to the term remaining on the pension.
The Payment Factor relating to the term of the pension can be found here under Payment Factors for Market Linked Income Streams.
Once you have calculated this annual payment amount, it may be varied by +/- 10% rounded to the nearest $10.
Let’s say that I had a Market Linked Pension balance of $100,000 on 1 July with a remaining term of 13 years.
The minimum income that I would need to take for the year would be $100,000/10.30 = $9,708 (Note: 10.30 us the pension factor of 13 years)
However, I have the ability to vary this payment +/- 10% rounded to the nearest $10. Therefore I may take a payment anywhere between $8,740 and $10,680.
The minimum pension payments must also satisfy the Account Based Pension minimum payment rules, as stated above.
Maximum Pension Payments for Term Allocated / Market Linked Pensions
The maximum is simply the annual income worked out using the formula above, + 10%. In the case above, this would be $10,680.
If you would like anything clarified or have any further questions about Minimum Pension Payments or any other topics, please do not hesitate to leave a comment.