COVID-19 – Reduction in the minimum drawdown rates
In recent weeks we have seen several changes and significant losses in the financial market. COVID-19 has not only impacted our homes and lives but also our retirement savings. To assist retirees, the superannuation law has been amended to allow a reduction in the minimum annual payment for account-based pensions, market-linked pensions, and allocated pensions. The annual drawdown requirements will reduce the required minimum payment by 50% for 2019-20 and 2020-21 financial years.
How will these changes impact me?
For the remainder of the 2019-2020 financial year, you can opt to reduce payments or stop payments if you have already met the reduced minimum amount for the financial year. From 1 July 2020, the reduction will be automatically applied to all members who have elected to receive the minimum payment.
How do I calculate the minimum amount with these new changes?
Minimum pensions are calculated based on a percentage of the account balance on 1 July of the financial year and your age. With the recent changes, the minimum percentage is now halved. The minimum pension calculations for 2019/2020 and 2020/2021 is now:
|Age||Standard percentage||Reduced percentage for 2019/2020 and 2020/2021|
|95 or older||14%||7%|
It is important to ensure that you are calculating the new minimum amounts correctly. We have added an example below to help you calculate your new minimum amount.
Patricia is 75 years old. As of 1 July 2019, Patricia’s account-based pension balance was $720,440. Under the new minimum requirements, Patricia will only have to calculate the pension at 3% instead of 6%.
3% x $720,440 = $21,610 (round off to the nearest $10)
If you have a market-linked pension we would suggest that you contact your SMSF administrator to determine your new minimum amount.
Can I return the amount I have already drawn over the minimum back to the fund?
The return of this money will be treated as a contribution to the fund as such you will need to ensure that you are eligible to make superannuation contributions. The contribution will be subjected to contribution caps.