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End of financial year - pension check


Given the end of the financial year is nigh, it is time to ensure that the minimum pension drawdown - the minimum drawdown for short - has been or will be satisfied in respect of the current financial year.  If the minimum drawdown is not satisfied by the end of the financial year, the SMSF will lose its entitlement to the full exempt current pension income deduction.  Additionally, there are transfer account balance consequences as well.

The minimum drawdown for an account-based pension is simply the product of the pension account balance and a percentage factor (which is determined by the attained age of the member receiving the pension).  The pension account balance is the balance at the start of the financial year (or, if the pension commenced part way through the financial year, then the balance of the pension account at its commencement).  The percentage factor is set out in the following table:

Attained Age at start of financial year (or, if the pension   commenced part way during the financial year – at the date of pension commencement)

Percentage Factor – applicable to   2021/22 and also applicable to 2022/23

  Under age 65


  65 to 74


  75 to 79


  80 to 84


  85 to 89


  90 to 94


  95 or more




Algernon turns age 70 on 1 May 2022 but his attained age on 1 July 2021 was 69.  His pension account balance at 1 July 2021 was $459,000.   

His minimum drawdown for the 2021/22 financial year is $11,480 (being 2.5% - as Algernon’s attained age at 1 July 2021 was 69 and the pension balance of $459,000 rounded to the nearest $10).  If the pension had commenced part way during the financial year, then the minimum drawdown will be pro-rated based on the number of days during the financial year the pension was being paid to the number of days (including leap days) in the financial year.

Algernon’s Pension Check

He must ensure that on or before 30 June 2022, at least $11,480 has been paid to him from this pension account.  It does not matter that he received $12,000 at the start of the financial year or $12,000 in June 2022 so long as the aggregate of pension payments during the 2021/22 financial year is $11,480 or more.

If Algernon has drawn down $8,000 in total by 1 May 2022, he must ensure that at least $3,480 will be paid during May and June.  It would be best that the payment or payments were completed before the last week of June.  Ensuring that any underpayment is made before the last week of June avoids the timing issue of when a pension payment is effected by electronic funds transfer – is it made when the money disappears from the SMSFs bank account or when the money appears in Algernon’s personal bank account – the ATO takes the view that the SMSF makes the payment when the payment is credited to Algernon’s personal bank account.

Finally, when determining the minimum drawdown, Algernon  cannot count any partial commutation payments – as these payments are no longer considered to qualify as pension payments for the minimum drawdown requirement.

What if Algernon has two or more pensions?

If Algernon is receiving two or more pensions then the minimum drawdown applies separately to each pension.  In particular, it is not permitted to “transfer” excess pension payments from one pension which has exceeded its minimum drawdown to another pension which has a deficit in respect of the drawdown requirement.

What happens if insufficient pension payments are made?

As Algernon has satisfied the minimum drawdown requirements, we will discuss Fred.

Fred’s SMSF is currently paying him an account-based pension and the minimum drawdown requirement for 2021/22 financial year was $16,000.  Unfortunately the SMSF only paid $12,000 in pension payments. 

Only after the end of the financial year does Fred realise he has not satisfied the minimum drawdown requirement.  Can Fred retrospectively “correct” the underpayment?

The short answer is “No”.  Fred should have followed Algernon’s lead.  Fred cannot rectify the underpayment in 2021/22 by saying that he exceeded the minimum drawdown in respect of the previous financial year and therefore is entitled to carry-forward the excess to 2021/22.  Equally, Fred cannot promise to exceed the minimum drawdown in the following financial year and thereby carry-back the promised excess to 2021/22.  Nor can Fred say that at 30 June 2022, his SMSF owed a debt equal to the pension underpayment and once this “accrual” is taken into account, there has in fact been no underpayment.  (Well, strictly Fred could say this and the accounts of the SMSF could be prepared on the basis of a debt owing to Fred – but the ATO is not listening.)

While the ATO has a limited administrative discretion to treat an income stream which has failed the minimum drawdown requirement as having satisfied the minimum drawdown requirement (either because of an honest mistake by the trustee resulting in a small underpayment (possibly at most 10% underpayment or because of factors outside the control of the trustee) the much more intelligent position is not to rely on this discretion.  On this point, simply forgetting or aiming for a payment at 11.59 pm on the last day of the financial year would not be beyond the control of the trustee.

Why be concerned about failing the minimum drawdown requirement?

  • the SMSF will lose all or part of its deduction for exempt current pension income deduction.  In short, the SMSF will be paying tax on the income arising from the assets which were supporting the pension;
  • the pension payments will be taxed as lump sum superannuation payments (this may not be an issue if the pensioner member is aged 60 or more);
  • the tax components of each lump sum will have to be calculated using the proportioning rule and applying that rule separately to each payment;
  • the pension will for transfer balance reporting purposes be treated as having been commuted as at 1 July (or its date of commencement if commenced part way during the financial year) – so a Transfer Balance Account Report (TBAR) will have to be prepared and lodged; and
  • the pension will have to recommence on the following 1 July and a new TBAR will have to be prepared and lodged in respect of the recommencement.


For any further information regarding this article please call SUPERCentral on 02 8296 6266 or email