The lowdown on drawdowns

6 min read
6 min read

Minimum drawdown requirement – a double-edged sword in a time of crisis

When markets and the value of investment portfolios fall, retirees can suffer the most. As they are no longer working, it’s hard for them to make up such losses to their capital. Depending on their age, they also may not have time to wait for markets and their investment portfolio to rebound.

On the other hand, because in the retirement phase they are required to draw down a minimum percentage as a pension each year, retirees not totally reliant on this for income can find themselves forced to sell assets into a falling market—thus making a loss on their superannuation investment—to generate income they may not even need.

Minimum drawdown rules exist to enforce the purpose of our super system – to provide income in retirement. They require retirees with super in account-based, allocated and market-linked pensions to withdraw a minimum amount of their super each year, based on their age. Without minimum drawdowns, the super system could be used by wealthier Australians who don’t really need a pension for a comfortable retirement to pass on tax-advantaged super savings to their heirs.

Why have minimum drawdown percentages been changed?

As a result of the COVID-19 pandemic, the Federal Government announced that the minimum pension drawdown rates would be temporarily halved for the 2019/20 and 2020/21 financial years. The Government did the same after the GFC, acknowledging how such crises hurt markets and therefore investment portfolios. If the drawdown rules force members to sell investment assets when prices are very low, a lot of these “paper” losses to super portfolios crystallise.

The Government’s temporary changes to the minimum drawdown percentages, therefore, mean that retirees with enough cash flow to ride out the pandemic will not be forced to sell assets, thereby preserving more of their capital, which means better returns when markets eventually rebound.

Those without sufficient non-super income to meet their living expenses (that is, without drawing down) can still withdraw on the pre-COVID-19 maximum drawdown amounts, despite the less than ideal consequences.

Normal and temporary percentage for minimum super drawdowns:

Age of beneficiary Temporary percentage Normal percentage
Under 65 2% 4%
65-74 2.5% 5%
75-79 3% 6%
80-84 3.5% 7%
85-89 4.5% 9%
90-94 5.5% 11%
95 or more 7% 14%


Early access to super offsetting lower minimum drawdowns

Halving drawdown minimums also helps preserve liquidity, the ability of funds to meet sudden redemptions or portfolio switches.

Human behaviour often puts pressure on liquidity in a crisis and so markets tend to overreact to the likes of COVID-19, pushing prices below their fundamental or intrinsic value. Ideally, investors will recognise that markets rebound eventually and staying invested is likely to deliver the best long-term outcome. History, however, tells us many investors panic, acting contrary to their own interest by selling out at potentially the worst possible time.

This is what investment managers usually see during a crisis, including those in superannuation who often see an increase in members switching from growth options that are high in equities to defensive options with lower returns such as cash and/or fixed interest. A flight from equities can hurt a fund’s liquidity.

In the current crisis, liquidity has also been tested by the Government’s initiative that allows early access to super for Australians financially hard hit by the pandemic. Fund members who are Australian citizens or permanent residents who meet certain criteria (Australian Taxation Office; Early Access to Super) can access up to $10,000 until 30 June 2020, and up to a further $10,000 from 1 July 2020 to 24 September 2020. Temporary residents can access up to $10,000 until 30 June 2020 only.

While the reduction in minimum drawdown percentages is keeping funds in super that would otherwise have been withdrawn, increased switching and/or redemptions from members combined with the COVID-19 early access scheme is a balancing act for superannuation fund investment managers.

The experience for super funds

The member profile of an individual fund is the biggest predictor of how it has been—and will continue to be—affected by these changes.

According to Allan Murphy, General Manager at BOC Super, which has a small number of allocated pensions, the Government measures have not significantly affected the fund’s cash flow. Initially there was a brief flurry of members moving from growth to defensive assets, but this stabilised quickly. However, whether the early access to super will be significant remains to be seen.

Murphy says that half of his 3,200 members are BOC employees, who haven’t lost their jobs during COVID-19. The other half are ex-employees who may be in a different financial position.

The question of liquidity, however, isn’t keeping Allan up at night – the potential amount of early access withdrawals as a percentage of BOC Super’s overall funds is very low. Even if every eligible member takes up early access, it will not hurt liquidity in the fund, said Allan.

What is concerning is the effect on our economy of economic disaster elsewhere in the world, such as where management of the virus and its economic consequences may not have been as well managed. If the fallout in the US, for example, is larger and more prolonged than expected, this will affect our economy for some years.

Christian Super CEO Ross Piper manages super for over 30,000 members from all sectors and geographies across Australia. With a less homogenous membership than BOC Super, it is harder to predict what individual members will do. Piper says that so far investor behaviour is being driven by a “flight to safety” mentality, and this has led to increased switching to defensive assets. He sees this crisis as different, being health-based, with a more intense and sudden fallout than during the GFC.

Nevertheless, Piper stresses fund liquidity is safe. Even in a worst-case scenario with maximum levels of switching, redemptions, and early access, Christian Super can comfortably meet redemption demand. The change to drawdown rules is very good news for those retirees able to stay invested, as this is the best way to ensure long-term performance outcomes.

plus ça change…

No crisis is the same, although funds can still learn from others when dealing with the COVID-19 challenges. The economic fallout will be substantial, even if the massive Government economic preservation packages have been significantly helpful. Ultimately, however, history tells us that there will be recovery. As the French saying goes, “the more things change, the more they stay the same.”

That’s good news for superannuation fund members who can stay invested during the immediate fallout. Super funds should emphasise the long-term nature of superannuation – and must engage thoughtfully, transparently, and honestly with members about decisions which affect their portfolios.

Picture of By Superfunds

By Superfunds

More Reading

Q&A with IFM Investors’ David Whiteley
In-Depth In-Depth

Q&A with IFM Investors’ David Whiteley

Super system can turbocharge productivity on road to net zero
In-Depth In-Depth

Super system can turbocharge productivity on road to net zero

Understanding the Division 296 super tax
In-Depth In-Depth

Understanding the Division 296 super tax

Derek Thompson

Via live link

Best Selling Author, Podcast Host of 'Plain English'

Sessions

Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Few speakers can match Derek Thompson‘s ability to synthesize mega-trends in society, labor, economics, technology, and politics. Put another way: Derek trawls the data sets and does the forecasting and deep reporting necessary to help us better understand how we live, how we vote, how we spend, and how we work.

In his paradigm-shifting #1 New York Times bestseller, Abundance (co-written with Ezra Klein), this award-winning journalist reveals how our policies and culture have pushed us into a world of scarcity (not enough housing, workers, or progress)—and offers a radical new path towards a world where housing is affordable, energy is plentiful, and innovation flourishes across industries.

He shares a compelling vision of a future where we have more than enough for everybody, and a practical, actionable roadmap for how to get there. It starts with taking more risks, building more expansively, and recognizing that we all have the power to create a world of abundance. “Everything’s utopian until it’s reality,” he says.

Carmen Beverley-Smith

Executive Director - Superannuation, Life & Private Health Insurance, APRA

Sessions

Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Carmen joined APRA in March 2023 and holds the role of Executive Director, Life and Private Health Insurance and Superannuation.  

She has had an esteemed career in financial services, spanning over 25 years. She has held diverse leadership roles at Westpac and Commonwealth Bank of Australia, including across risk, transformation and change, product and portfolio development, and sales and service. 

Prior to joining APRA, she held the role of General Manager, Risk Transformation Delivery Integration at Westpac. This involved leading the group-wide implementation of a suite of solutions to uplift risk management capability and develop data, analytics and reporting. 

Carmen leads with a values-driven approach and a particular interest in developing and mentoring talent. 

She holds a Bachelor of Commerce and Accounting, is a certified Chartered Accountant and a Graduate of the Australian Institute of Company Directors. 

Amy C. Edmondson

Novartis Professor of Leadership and Management, Harvard Business School

Sessions

Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Amy C. Edmondson is the Novartis Professor of Leadership and Management at the Harvard Business School, a chair established to support the study of human interactions that lead to the creation of successful enterprises that contribute to the betterment of society.

Edmondson has been recognized by the biannual Thinkers50 global ranking of management thinkers since 2011, and most recently was ranked #1 in 2021 and 2023; she also received that organization’s Breakthrough Idea Award in 2019, and Talent Award in 2017.  She studies teaming, psychological safety, and organisational learning, and her articles have been published in numerous academic and management outlets, including Administrative Science Quarterly, Academy of Management Journal, Harvard Business Review and California Management Review. Her 2019 book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (Wiley), has been translated into 15 languages. Her prior books – Teaming: How organizations learn, innovate and compete in the knowledge economy (Jossey-Bass, 2012), Teaming to Innovate (Jossey-Bass, 2013) and Extreme Teaming (Emerald, 2017) – explore teamwork in dynamic organisational environments. In Building the future: Big teaming for audacious innovation (Berrett-Koehler, 2016), she examines the challenges and opportunities of teaming across industries to build smart cities. 

Edmondson’s latest book, Right Kind of Wrong (Atria), builds on her prior work on psychological safety and teaming to provide a framework for thinking about, discussing, and practicing the science of failing well. First published in the US and the UK in September, 2023, the book is due to be translated into 24 additional languages, and was selected for the Financial Times and Schroders Best Business Book of the Year award.

Before her academic career, she was Director of Research at Pecos River Learning Centers, where she worked on transformational change in large companies. In the early 1980s, she worked as Chief Engineer for architect/inventor Buckminster Fuller, and her book A Fuller Explanation: The Synergetic Geometry of R. Buckminster Fuller (Birkauser Boston, 1987) clarifies Fuller’s mathematical contributions for a non-technical audience. Edmondson received her PhD in organisational behavior, AM in psychology, and AB in engineering and design from Harvard University.

 

Daniel Mulino MP

Assistant Treasurer and Minister for Financial Services

Sessions

Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Born in Brindisi, Italy, Daniel was a young child when he moved with his family to Australia. He grew up in Canberra and completed his first degrees – arts and law – at the ANU. He then completed a Master of Economics (University of Sydney) and a PhD in economics from Yale.

He lectured at Monash University, was an economic adviser in the Gillard government and was a Victorian MP from 2014 to 2018. As Parliamentary Secretary to the Treasurer of Victoria, Daniel helped deliver major infrastructure projects and developed innovative financing structures for community projects.

In 2018 he was preselected for the new federal seat of Fraser and became its first MP at the 2019 election, re-elected in 2022 and 2025. From 2022 to 2025, Daniel was chair of the House of Representatives’ Standing Economics Committee in which he chaired inquiries; economic dynamism, competition and business formation and insurers’ responses to 2022 major floods claims.

In 2025, he became the Assistant Treasurer and Minister for Financial Services.

In August 2022, Daniel published ‘Safety Net: The Future of Welfare in Australia’, which aims to explore the ways in which an insurance approach can improve the effectiveness of government service delivery.