Account-based pensions and minimum payments

Account-based pensions can only be commenced with funds that have come from superannuation. For example, you can’t just have money in the bank and decide to commence one – money has to go into a superannuation fund first. They have generous tax concessions and as a consequence the government would like you to take a “minimum pension payment” each year.

I guess my thoughts are to why this is the case is that they don’t want retirees using account-based pensions as a tool to hold wealth in a tax effective manner and not spend it in their retirement. They are designed to be spent and used to live off of in retirement, not having investments continue to grow in which most cases is a zero tax earning environment.

You can take money from an account-based pension as either a pension payment or a lump sum. Whatever way you take it looks the same in your bank account, however it changes how the account-based pension provider records it and accounts for it on their systems.

The current minimum pension payment requirements are as below.

Age under 65 = 4.0%

Age 65–74 = 5.0%

Age 75–79 = 6.0%

Age 80–84 = 7.0%

Age 85–89 = 9.0%

Age 90–94 = 11.0%

Age 95 or more = 14.0%

In recent years from approximately 2020 to the middle of 2023, these above figures were cut in half, with the reasoning by the government is that, after COVID share markets did drop a bit, and the government allowed retirees to not draw as much such that they can keep more of their assets invested to hopefully recover.