On the 29th May 2021 the government announced it will extend the temporary reduction of 50% to the superannuation minimum drawdown rates.
For many retirees, as a result of the COVID crisis they experienced significant losses to their superannuation balances. In response, the government reduced the pension minimums in March 2020. The change aimed to assist retirees by giving them more choice and flexibility on redeeming their assets during the market instability. Under that announcement the reduced rates applied to account-based pensions, allocated pensions (including transition to retirement pensions), and market-linked pensions (also commonly called term-allocated pensions).
We expect the extension to continue to apply to these products and it will now run until 30 June 2022.
Superannuation providers calculate the minimum annual payment required as at 1 July each year, based on the account balance at that time. The 50% reduction will apply to this calculated minimum annual payment.
For example, Bob is 67 and has an allocated pension balance of $200,000 on the 1st July 2021. The standard 5% would mean he needs to draw at least $10,000 during the financial year. Under the temporary COVID minimum rules he can reduce this to 2.5% or $5,000.
The rates that apply for different ages are shown in the table below:
|Standard Minimum Payment||Temporary FY 2020/21 and now 2021/22 COVID Minimum Payment|
|Age||(% of account balance)||(% of account balance)|
|55 – 64||4.0%||2.0%|
|65 – 74||5.0%||2.5%|
|75 – 79||6.0%||3.0%|
|80 – 84||7.0%||3.5%|
|85 – 89||9.0%||4.5%|
|90 – 94||11.0%||5.5%|
If you have specified a dollar amount to be drawn from your allocated pension, you should continue to receive that amount post 1 July. If you have already elected to receive the COVID minimum for FY21, this should continue in FY22, but it will be adjusted as a % of your balance as at 1 July 2021 (we are still waiting for product providers to confirm their process).
Those that may benefit from this measure include pensioners receiving a part age pension under the income test, and have a grandfathered pension. If you don’t need your current level of cashflow, there could be a benefit to leave the pension payment invested, to preserve capital.
As always speak with your adviser to work out what is the best decision for you.
This is intended to be general advice only. Goldsborough Financial Services has not taken into account the objectives, financial circumstances or investment needs of any particular person. For specific advice on your situation please contact your Goldsborough Financial Planner.