When applying for a retirement visa extension, how many months should be left on a passport before it expires? 

12 would be good as then you'll get the whole year of extension, otherwise it will end on the expiry date of your passport.

12+ 

Minor amount of money gained by maxing out validity of a pp.

Think most pp are now valid for 10 years. 

Renew to obtain full 12 month extension.

 

New passport date is a good opportunity to change the annual extension date, i.e. least busy time possible and when you'll definitely be in country