The Government is helping retirees to manage the impact of volatility in financial markets on their retirement savings by temporarily reducing superannuation minimum drawdown requirements by 50 per cent for 2019-20 and 2020-21. This measure will benefit retirees by providing them with more flexibility as to how they manage their superannuation assets. Also, the ability to apply this relief is automatic – there is no requirement to apply to the ATO first.

How does this apply to your pension account?

The pension reduction applies to account-based pensions including allocated pensions, transition to retirement pensions and market-linked pensions. The relief does not reduce the maximum allowable (10% rate) under a transition to retirement pension, as this is merely a means to assist in the preservation of capital.

The pension reduction will not apply to complying lifetime pension (SIS Reg 1.06(9)) or complying life expectancy pensions (SIS Reg 1.06(7)).

Can I return the money if already taken out the new minimum?

Unfortunately, if an individual has already taken their minimum pension amount for the 2019/20 financial year, they will not able to return the excess into their superannuation accounts unless they meet contribution eligibility.

How do I treat the excess over the new minimum pension?

There are also transfer balance account benefits for only withdrawing the minimum amount as a pension payment, with any additional amounts withdrawn (in excess of the minimum pension requirements) being taken as a lump sum payment.  However, commutations must be done at the date of withdrawal, meaning you cannot convert a previous pension payment into a pension commutation.  If you have met your minimum pension for the year, you may wish to consider treating future withdraws as commutations of your pension, so you receive a credit on your transfer balance cap.

Example 1 – Existing Pensions

John is 67 years of age. At 1 July 2019, John’s account-based pension balance was $480,000. John’s minimum annual payment was calculated at 5% of his pension balance, which is $24,000. Following the law change, John’s required annual minimum pension payment for 2019–20 is $12,000.

If John has already withdrawn more than $12,000 for 2019–20, he is not able to put the amount above $12,000 back into his superannuation account unless he’s eligible to make superannuation contributions.

Example 2 – Pensions that commence part-way during the year

Bob commences an account-based pension on 1 January 2020 at age 66. His pension account balance on the commencement day is $250,000. Under current minimum drawdown requirements, the minimum annual payment amount would be $12,500 (5% of $250,000). As the pension commenced on 1 January 2020, the required minimum amount is calculated proportionately from the commencement day to the end of the financial year:

$12,500 (minimum annual payment amount) × 182 (days remaining) ÷ 366 (2020 is a leap year) = $6,215.

Following the temporary reduction in minimum drawdown requirements, Bob is only required to draw down 2.5% of his account balance, which is $3,107 ($3,110 rounded up to the nearest 10 whole dollars). If you have any questions around this, or would like to speak with an advisor, please contact the Partners Wealth Group Audit team today, and they will be more than happy to help you.