– from minimum pension drawdown…

Does your minimum pension drawdown give rise to surplus cashflow?

Have you thought about investing surplus cashflow arising from your pension drawdown?

savings from surplus cashflow being placed into a piggy bank for investment later

Investing surplus cashflow is most typically a dilemma for self-funding retirees whose pensions accounts provide pension benefits in excess of their lifestyle needs. In response, they seek advice about how best to use those funds effectively (rather than ‘wastefully’).

One particular strategy for investing surplus cashflow has been a popular solution: it is a strategy that works for pensioner clients whether they are using a ‘public-offering’ superannuation pension provider (a retail fund), or they have a self-managed superannuation fund (SMSF).

Why do I have to draw more pension than I need to live on? (How does the surplus cashflow arise?)

Under the Superannuation Industry Supervision legislation, one of the purposes for which a superannuation account can be operated is to provide retirement income. Under the taxation legislation, superannuation accounts that are ‘in pension phase’ are, at the time of writing, exempted from tax on their earnings.

In recognising this advantaged treatment, the government has specified minimum amounts of pension to be drawn in a financial year. The schedule is graduated so that as the account-owner ages, the percentage to be drawn by them increases.

When the minimum percentage is applied to the account balance at the commencement of the financial year the pension drawdown can exceed the lifestyle budget of the careful pensioner – and consequentially, they are left with a surplus cashflow about which to make some decisions.

The surplus cashflow can be utilised in a number of ways, but not all of them will be beneficial to the retiree – nor to their (ultimate) estate beneficiaries.

How are you dealing with your surplus cashflow?

If you are in this position, is your surplus being utilised to –

  • accumulate collectibles that you like (but which may not be valued so highly by your beneficiaries or the market into which they are ultimately sold)?
  • enhance the lifestyle of your family or dependants (and missing the opportunity to teach them financial discipline)? Remembering the gifting rules and how they affect any Centrelink benefits you may be entitled to!
  • grow an investment portfolio that is causing you to continue as a taxpayer for longer than is necessary (or at a higher rate than is really necessary)?

You might be able to suggest some other uses that your surplus is being put to, but that you would prefer to see accumulating in a more effective way for yourself and for your beneficiaries……

How are pensioners investing surplus cashflow from their minimum pension benefits?

One strategy for dealing with such a surplus is to use investment bonds to provide for beneficiaries (who may or may not currently be provided for in your estate planning documentation), nominating them as beneficiaries in the event of –

  • your death; or
  • their attainment of a nominated age/ or at a nominated date1 that suits your purposes.

What are Investment Bonds: and are there any pitfalls to consider?

Apart from the investment risks that are detailed in the Product Disclosure Statement for investment bonds on issue by the providers, there is also the need to consider the structure of the estate plan that you may have in place.
We strongly recommend that any intention to proceed with an investment in these bonds, be accompanied by discussion with your estate planning adviser and/ or your financial planner so as to minimise the risk of estate distribution ‘imbalance’ and/ or challenge by disenfranchised potential beneficiaries.

Continuum Financial Planners Pty Ltd is available to explain further…

The experienced wealth management advisers at Continuum Financial Planners Pty Ltd have worked with investment bonds in a number of strategies – including the one mentioned above ( – and for endowment planning; and for education funding). We are available: ‘to listen (to your circumstances), to understand (your financial planning need); and to provide strategies (to help you in your planning)’. To arrange a meeting with one of our advisers, call our office (on 07-34213456); or use the website Contact Us facility – and learn how we can be of service to you with personalised, professional wealth management advice.

 1.The date needs to be more than ten years from the date of first investment so as to avoid payment of further taxes at redemption (other than in the case of a death benefit payment).

(This post was first published on this website’s Blog Page in December 2014: it has occasionally been refreshed/ updated, most recently in April 2021.)