The reduction in the superannuation drawdown rate for another 12 months will enable retirees to cope better with the volatility in investment markets, SMSF Association deputy chief executive Peter Burgess says.
The Morrison government first introduced a reduction in the minimum annual payment required for account-based pensions, annuities and market-linked pensions during the pandemic in 2020. However, as many retirees and SMSFs continue to be hit by losses in financial markets the government has extended the measure for 12 another 12 months.
For clients with APRA-regulated funds, Mr Burgess said it was worth keeping an eye on any communications the client received from the fund explaining how they would apply the measure.
“Planners will need to work with their clients to determine whether the minimum pension still meets their client’s income needs,” he said.
“In most cases, where you have previously chosen the minimum pension amount, the fund will automatically apply the 50 per cent reduction, so it’s a matter of assessing whether [it] still meets their needs with regards to cost of living pressures and the like.”
While this recent announcement is simply an extension of the current temporary rules, to ensure the optimal outcome for clients, it is important to understand that the legislation halves the drawdown rates themselves.
For example, the normal 5 per cent drawdown factor for the recipient of an account-based pension aged 65–74 is now 2.5 per cent.
It is important for pensioners to make sure they do not fail the minimum draw down pension rules, especially those who operate their own SMSF.
If a client requires more than the minimum, then they will need to notify their advisor or the pension provider that they will require a fixed amount rather than the minimum drawdown amount set by government.
