Superannuation Drawdown Rates

Superguide.com.au advises that ‘you can arrange to have the pension supplement paid quarterly rather than fortnightly if you prefer, to help you budget for regular quarterly bills like electricity’. This is a pretty grim sign that the pension amount may not be worth relying on if you can help it.

What does super do?

Superannuation is designed to be used in retirement to replace or supplement the aged pension and with enough funds in your super balance it will do just that. Perhaps you do not have enough to get you through, the pension is still there for your support. Whilst you access your super balance to fund your retirement, you will be reducing your super balance, but you will not be required to extinguish your super balance entirely before you receive a government pension, asset tests will impact your pension eligibility.

Drawdown rates are the minimum percentage of your superannuation balance that you are required to be withdrawing each year, a higher drawdown rate will mean that you use your super faster and although life is unpredictable, you can predict you will progressively deplete your super faster whilst simultaneously receiving less and less due to the increase in drawdown rates as you age.

The minimum drawdown rate for over 95 year olds is 7% and for the age group between 65 - 74 it is just 2.5%. These rates were temporarily reduced 50% (to these levels) from the 2019-2020 financial year until the end of the 2021-2022 financial year as a response to the significant losses in financial markets as a result of the COVID-19 (pm.gov.au, 2021). A big reminder that your super balance is invested in markets that are susceptible to reductions and the superannuation guarantee is only a guarantee that funds will be paid to the account, not the other way around.

2.5% drawdown from the age of 65 through to 74.

3% from the age of 75 (75-79 rate bracket).

3.5% from the age of 80 (80-84 rate bracket).

4.5% from age 85 (85-89 rate bracket).

5.5% from age 90 (90-94 rate bracket).

7% from age 95 as final age rate alteration.

As you progress through the ages the percentages will change, your funds will reduce in value as you access these minimum amounts. The percentages above are made far more favourable by the temporary minimum rate halving by the Australian Government. Double the rates above to achieve their normal levels between 5 and 14%.

You are allowed to use as much of your super as you like through application, until it is determined that you are drawing your super down to a level which will require you to then be dependent on the pension. ‘There is no maximum amount which must be withdrawn (from your super) unless it is a Transition To Retirement pension (TTR). A maximum amount of 10% of your account balance applies for transition to retirement pensions which are not in retirement phase and you have not met a condition of release to withdraw is all as a lump sum.

Lower Rates

Lower drawdown rates allow you to preserve the balance of your super for longer, but the less you are drawing down, the less income you will have to spend each fortnight. It is important to balance your needs, especially when financial markets have been impacted, continuing to drawdown above the minimum drawdown rate when investment funds have been reduced to market volatility will mean you are reducing your balance at a higher rate than is required whilst your balance is lower than it may have been months prior irrespective of your withdrawals.