Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 498

Drawing more than you need to fund your super pension

Pension paying super funds are required by the government to make minimum annual pension payments essentially to ensure they are being used to provide a retirement income rather than just being used as a tax-advantaged method of building wealth for beneficiaries. If a super fund, including SMSFs, fail this minimum pension test, they lose concessional tax treatment, and the tax rate reverts to the normal 15% rate applicable to accumulation superannuation accounts rather than the 0% applicable to a pension paying fund.

Many in retirement live a reasonably frugal lifestyle and those with large super balances find themselves with excess cash coming in each month. This will likely be exacerbated from 1 July 2023 if the rates revert to normal after three years of half rates. Just getting older exacerbates the situation as the required pension drawdown percentage increases.

The minimum pension drawdown

Consider a retiree couple that has $1.7 million each in pension mode in super, making it $3.4 million in total. They are both 76 years of age, which means they are each currently required to draw a minimum of 3% per annum from their super to fund their super pension, or $102,000. This is tax free income to them.

From 1 July 2023, the required minimum pension drawdown is likely to revert to 6% for a 76-year-old, after which the couple must make combined payments of at least $204,000 from their super for the 2023/24 financial year.

When the couple reaches 80 years of age, the standard rate increases again to 7%. If the pension balances for a couple managed to be maintained at $1.7 million each, the required combined pension payments amount to $238,000, tax free.

Due to indexation, those who start a pension from their superannuation after 1 July 2023 may have a pension account limit of $1.9 million, or up to $3.8 million for a couple. From this, they could be required to draw $190,000 per year at 5%, or $266,000 at 7% if they are over 80. This is after tax income to them.

Equalising superannuation balances

Since pension account caps were introduced from 1 July 2017, at a rate of $1.6 million per individual, it has made sense for those couples with large superannuation balances to aim to equalise their superannuation accounts or at least build each towards the $1.6 million limit. Prior to this, when pension accounts were not limited, there was no major incentive to do so. Due to contribution limits and limitations, equalising member accounts has been fraught with complication.

The requirement to pass a work test to contribute was often a difficulty. The removal of this for those aged between 67 and 75 for non-concessional (non-tax deductible) contributions from 1 July 2022 has certainly simplified the process of evening out superannuation accounts between a couple.

For example, for a couple in their late 60s early 70s where one has a $3 million balance and the other has a $1 million balance, the higher balance member could withdraw $110,000 (to be indexed) each year tax free, gift it to their spouse who then makes a non-concessional contribution to their superannuation account. Over time, the lower balance member can build towards the current limit of $1.7 million (to be indexed). This way a greater proportion of the couples combined superannuation can qualify to be placed in tax-free pension mode. It is also permissible to turbo charge the reallocation by doing a triple contribution in a given year, then sitting out the next two years.

As with all superannuation contributions, care needs to be taken to get it right. SMSFs can be handy when extra flexibility is sought and to enable easier access to withdrawals and contributions.

Where to put the excess from your pension drawdown

A retired couple can live a comfortable lifestyle with a mandated yearly pension drawdown and still have plenty of money to spare. So what can they do with that money?

An alternative could be to set up another non-superannuation investment account – either in joint names or, if there is other substantial wealth, in the name of a family trust or investment company. The pension payment can then be paid to that investment account and the couple can draw only what they need and invest the remaining balance. Depending on whether they have any other taxable income, investment earnings could attract very little tax due to the individual’s tax-free threshold.

The decision as to the name in which the portfolio is held will depend on a number of factors. For example, a personal or joint portfolio will be the simplest, but doesn’t provide asset protection or tax benefits. Income is just taxed at the individuals marginal tax rates. A tax return may need to be lodged in the future whereas maybe this hadn’t been required prior to the portfolio being established.

For larger portfolios it can be useful to use a structure, a family trust or a personal investment company, to house portfolios that can’t be added to a superannuation account due to limits imposed thereon. Family trusts and investment companies can be flexible and can add tax efficiency and asset protection advantages. However, there is a cost involved in preparing annual accounts and tax returns.

This strategy of having a secondary investment portfolio can be particularly useful when one spouse dies, and a large lump sum superannuation death benefit may be paid out. This death benefit can also be added to the non-super portfolio.

Some wealthy retirees also use the spare income to assist their children or grandchildren. Using a tax-free superannuation pension income is a great way to fund the part payment of a grandchild’s non tax-deductible school fees, for example.

You may even wish to donate more to your charities of choice and get to see the benefits conferred, rather than leaving bequests as part of your estate planning.

Whatever you do, all the money accumulated over a working life should be doing something useful, and not just sitting idle. You’ve worked hard for your money, and now that you’re in retirement, make it work for you.


Michael Hutton is a Partner of Wealth Management at HLB Mann Judd, Sydney. This article is general information and does not consider the circumstances of any individual.


S Raj
October 25, 2023

My wife and I in our 70’s have a combined smsf in shares at 3M dollars value. We have 2 properties in smsf as well drawing rents. Value of both properties? 4M. How do I work out my 6% draw down per annum?

March 04, 2023

Hi Michael, regarding " Family trusts and investment companies can be flexible and can add tax efficiency and asset protection advantages. ", could this investment company be an ASIC-registered say ABC Pty Ltd ( $2 paid up capital ) where the excess pension say $2000 is regarded as a loan to ABC Pty Ltd ? And this $2000 is then use to invest in the name of ABC Pty Ltd.

Dan M
March 03, 2023

Thanks Michael good article. In regards to the non-super investment portfolio, many retirees already have these secondary income streams as part of multiple sources of income strategies.
Looking at the personal tax rates the 19% tax rate kicks in at $45K so it would make sense for retirees to try and keep their non-super income under $45K to be tax effective, it’s a tricky situation.

March 03, 2023

"personal tax rates the 19% tax rate kicks in at $45K": At $18,201, not accounting offsets: When SAPTO, pay gross dividends <= $29,783 (2022-23). Marginal tax: 0%; +$1: 31.5%. That > $29,783 best left in company.

John Peters
March 03, 2023

Nice article - wonder if the latest super announcements have any impact on these things...


Leave a Comment:



Super prospects from Australia’s most powerful CIO

2024/25 super thresholds – key changes and implications

The when and why of four million Australian retirees


Most viewed in recent weeks

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

How much do you need to retire comfortably?

Two commonly asked questions are: 'How much do I need to retire' and 'How much can I afford to spend in retirement'? This is a guide to help you come up with your own numbers to suit your goals and needs.

Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

The secrets of Australia’s Berkshire Hathaway

Washington H. Soul Pattinson is an ASX top 50 stock with one of the best investment track records this country has seen. Yet, most Australians haven’t heard of it, and the company seems to prefer it that way.

How long will you live?

We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.

Latest Updates


Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

Exchange traded products

The catalyst for a LICs rebound

The discounts on listed investment vehicles are at historically wide levels. There are lots of reasons given, including size and liquidity, yet there's a better explanation for the discounts, and why a rebound may be near.


The new retirement challenges facing Australians

A new report from Vanguard has found an increasing number of Australians expect to be paying off a mortgage in retirement, or forced to rent. A financially secure retirement is no longer considered a given.


Why aren’t there more Warren Buffetts?

Warren Buffett is widely regarded as the most successful investor ever. Rather than keep his secret sauce hidden, he's shared his knowledge for decades, so why aren't more investors able to replicate his methods and success?


Finding joy in retirement

Retirement can last more than 30 years, necessitating thoughtful planning. Many miss workplace friendships, identity, status, expertise, and routine, but these can be replaced with renewed activities and purpose.


Bull and bear case for Australian equities for FY25

ASX market bulls point to corporate balance sheets and earnings, while bears highlight company valuations and persistently higher inflation. It's best to ignore short-term noise and focus on investing in quality companies.


How gold can help diversify your portfolio

As inflation is likely to remain stubbornly elevated, the correlation between bonds and equities could remain high, reducing diversification within portfolios. A gold allocation may help to better protect your investments.



© 2024 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.