Avoid Pension Underpayments – check that sufficient pension payments will be made!

Trustees and members need to ensure that each pension will satisfy the “minimum drawdown requirement” before the end of the financial year. Early detection of a likely underpayment means that corrective action can be taken before and hopefully well before 30 June 2026.

In board terms, each pension must satisfy the pension “drawdown requirement”. If this requirement is not satisfied, the superannuation interest from which the pension is being paid, will, for taxation purposes be treated as if the superannuation interest was not in pension phase from the start of the financial year.

The minimum drawdown requirement is that the aggregate pension payments in a financial year must equal or be greater than a percentage of the pension balance immediately before the start of the financial year. Percentage is determined by the attained age of the member receiving the pension as at 1 July.

If Judy commenced a pension on 1 July 2025 with an account balance of $500,000, her minimum drawdown requirement for the 2025/26 financial year would be as follows:

Attained Age	Percentage	Minimum Drawdown
Less than 65	4%	$20,000
65 or more but less than 75	5%	$25,000
75 or more but less than 79	6%	$30,000
80 or more but less than 85	7%	$35,000
85 or more but less than 90	9%	$45,000
90 or more but less than 95	11%	$55,000
95 or more	14%	$70,000

If the minimum drawdown requirement is not satisfied, then:

the superannuation interest supporting the pension will not be entitled to the investment earning exemption – that investment earnings for the entire financial year will be subject to 15%; and

each payment will be treated as a lump sum payment (which are still tax-free) however, the tax free/taxable portion of each payment must be separately calculated – which will increase the accounting costs of the super fund.

Between now and the end of the financial year – any additional payments, which are necessary to be made to satisfy the minimum drawdown requirement, must be identified and paid.

“Accruing” the pension underpayment in account of the superannuation fund does not cut the mustard and is not a solution to the problem.

Additionally, the pension payments must be in cash or as an electronic transfer from the bank account of the super fund to the bank account of the member.

While the ATO has an administrative discretion to disregard minor underpayments (and underpayments beyond the control the trustees) so long as the underpayment is remedied once it is identified, it is best not to be in the position of having to rely on the favourable exercise of the discretion – as it may come with conditions and it may not be applied.