Essentially, this means you could stay on your reduced (50 per cent) pension drawdown amount for FY23 and further preserve your tax-free balance in the pension phase. This must be weighed up against your need for the actual pension income to meet your normal expenses.
To learn more about the pros and cons of reducing superannuation or pension minimum drawdown rates, click here.
Who will benefit?
Each financial year, the government requires you to withdraw a certain amount from your pension – this is called your minimum income amount. Due to the impact of the pandemic on retiree finances, the government has reduced this minimum amount temporarily.
The temporary reduction in pension drawdown rates (see table below) will benefit retirees with account-based pensions and similar products. The concept is to further allow pension balances to grow, increase and rebuild in the “post-COVID” recovery of markets.
The minimum pension drawdown requirements will be:
||Default minimum drawdown rates (%)
||Reduced minimum drawdown rates proposed for 2020-23(%)
|65 – 74
|75 – 69
|80 – 84
|85 – 89
|90 – 94
|95 or more
Source: Information on changes to how much you can withdraw from your pension (AMP)
If you are being paid a ‘Specified Amount’ instead of the ‘Minimum’, this measure will not impact the amount you are paid each fortnight/month or your annual payment.
Things to consider
Can you afford it?
The most important thing you need to consider when looking at this government initiative is affordability. Can you afford to reduce your income by 50 per cent and still maintain your retirement lifestyle?
In our current isolation environment, this could be a good opportunity to revisit your budget as some expenses such as travel or dining out may have decreased which means your income needs are now lower.
If this is the case, then it could be an extremely beneficial initiative as it allows you to retain your retirement fund in a tax-free environment. It also gives your money the opportunity to stay invested longer and benefits from any increase in the market.
However, as stated earlier, this initiative should be considered only if you can afford it and it won’t impact your lifestyle too much.
To learn how to maximise your retirement living and aged care options, click here.
Consult your Financial Adviser
Leading up to the end of the financial year and in consideration of your pension in the new financial year (FY22), you may have had conversations with your Financial Adviser about this reduced pension measure coming to an end. Should you wish to review your needs in light of this announcement and your current pension settings – please contact your Adviser as soon as possible.
Remember, changes to your pension amount and frequency can be made at any time. So, if the first payment in July is lower than you want or expected…it can be easily changed.
To find out how these changes affect the minimum payment amount you must withdraw from your pension this financial year, and also to learn whether the minimum drawdown amount is the best approach for you, book an appointment today.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.