Avoiding Pension Underpayments: Have You Met Your Minimum Pension Payment?
As the financial year draws to a close, it's an ideal time to review your superannuation arrangements and ensure everything remains on track. While investment performance and retirement strategies often receive the most attention, one of the most important—and commonly overlooked—administrative requirements is ensuring your account-based pension meets the Australian Taxation Office's (ATO) minimum annual pension payment rules.
For retirees drawing an income from their superannuation, failing to withdraw the required minimum pension amount before 30 June 2026 can have significant tax consequences. Fortunately, by reviewing your pension payments before the end of the financial year, any potential shortfall can usually be identified and corrected in time.
At ODV Private Wealth, we encourage clients to review these requirements well before year end, helping to ensure their retirement income strategy remains both compliant and tax effective.
Understanding the Minimum Pension Requirement
Once an account-based pension has commenced, legislation requires a minimum amount to be withdrawn from the pension each financial year. These minimum withdrawal requirements are designed to ensure that retirement savings are progressively used to provide income during retirement.
The minimum payment is calculated using:
the pension account balance immediately before the start of the financial year (or the balance when the pension commenced if started during the year); and
the member's age as at 1 July of that financial year.
The percentage increases with age, reflecting the expectation that retirees generally draw a higher level of income as they grow older.
For the 2025/26 financial year, the standard minimum drawdown rates are:
Age Minimum Drawdown Rate
Under 65 4%
65–74 5%
75–79 6%
80–84 7%
85–89 9%
90–94 11%
95 and over 14%
Example
If your pension account balance was $500,000 on 1 July 2025, your required minimum pension payment for the 2025/26 financial year would be:
Age Minimum Payment
Under 65 $20,000
65–74 $25,000
75–79 $30,000
80–84 $35,000
85–89 $45,000
90–94 $55,000
95 and over $70,000
These minimum amounts apply regardless of investment performance throughout the year and must be paid before 30 June 2026.
Why Meeting the Minimum Matters
For many retirees, an account-based pension provides one of the most tax-effective ways to receive retirement income. Investment earnings generated by assets supporting the pension are generally exempt from tax within the superannuation fund.
However, this favourable tax treatment depends on the pension complying with the legislative requirements throughout the financial year—including meeting the minimum drawdown obligation.
If the required minimum pension payment is not made by 30 June, the consequences can extend beyond simply making an additional withdrawal.
Potential Consequences of an Underpayment
Where the minimum annual pension has not been satisfied, the pension may be treated as though it was not in retirement phase for tax purposes for the entire financial year.
Depending on the circumstances, this may result in:
Loss of the tax exemption on investment earnings, meaning earnings supporting the pension may become taxable within the fund at 15%.
Reclassification of pension payments already received during the year as lump sum withdrawals, requiring additional tax component calculations and increased administration.
Additional accounting and compliance costs associated with correcting the position.
The need for trustees and advisers to determine whether the ATO's administrative discretion may be available, which is assessed on a case-by-case basis and should not be relied upon.
While the ATO may exercise discretion in limited situations involving genuine mistakes or circumstances outside the trustee's control, there is no guarantee that relief will be granted.
The simplest and most effective approach is to ensure the required minimum payment is made before the financial year ends.
Common Reasons Underpayments Occur
Minimum pension shortfalls often arise for relatively simple reasons, including:
pension payments being suspended or reduced during the year;
changes to bank account details delaying payments;
commencing a pension part way through the financial year;
calculation errors when multiple pension accounts exist;
overlooking annual payment reviews.
Regular monitoring throughout the year can help identify these issues well before they become a problem.
Important Practical Considerations
There are several operational requirements trustees and members should remember.
The pension payment must actually be paid before 30 June 2026. Recording an accrued pension liability in the fund's accounts is not sufficient to satisfy the legislation.
Similarly, electronic transfers should be processed with enough time for the payment to leave the superannuation fund's bank account before the end of the financial year. Waiting until the final days of June can increase the risk of processing delays.
Planning ahead allows sufficient time to identify any shortfall and arrange additional payments if required.
Reviewing Your Pension Before Year End
As part of your end-of-financial-year planning, it is worthwhile asking:
Have I received my required minimum pension payment?
Has every scheduled pension payment actually been processed?
Have there been any changes during the year that could affect my minimum drawdown calculation?
Do I have multiple pension accounts that each require separate minimum payments?
Reviewing these questions before the end of June can help avoid unnecessary tax consequences and ensure your retirement income continues to operate as intended.
How ODV Private Wealth Can Help
Managing retirement income involves more than selecting investments. Ongoing administration, legislative compliance and regular reviews all play an important role in protecting the tax effectiveness of your superannuation.
At ODV Private Wealth, we work closely with our clients to help ensure their retirement strategies remain aligned with changing legislation and their evolving financial objectives. Whether you're already receiving a pension or approaching retirement, a proactive review can provide confidence that your arrangements remain appropriate and compliant.
If you would like to review your pension payments before the end of the financial year or discuss your broader retirement strategy, we'd be pleased to assist.
Contact ODV Private Wealth on (08) 8352 2522 or email planning@odvwealth.com.au to arrange a consultation.
General Advice DisclaimerThe information on this website is general in nature and does not take into account your personal objectives, financial situation, or needs. You should consider whether the information is appropriate for you and read the relevant Product Disclosure Statement (PDS) before making any investment decision. ODV Private Wealth Pty Ltd ABN 28 679 606 583 | Corporate Authorised Representative (No. 001313599) of Humble Goode Financial Pty Ltd AFSL 349026.
