Reducing payments from your account-based pension

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Agnes is confused about what will happen if she reduces her payments from an account-based pension.

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Q. Agnes
The government has announced that pensioners can reduce the payments from account-based pensions. I am a 73-year-old single renter. Currently I receive a part Age Pension ($1012 per fortnight including supplements and rent assistance) based on the income I receive from my account-based pension ($1000 per month) and pensions from overseas (about $550 per month).

Should I reduce my account-based pension from five per cent to 2.5 per cent, will this result in an increase in the Age Pension payments from Centrelink, which is assessed on my income, OR will it result in living on a reduced income?

A. Your income test is assessed on deeming of the balance of your account-based income stream, not the amount that you draw down, so you will be living on a reduced income if you choose to reduce your payment.

For many retirees, the significant losses in financial markets as a result of the COVID-19 crisis are having a negative effect on the account balance of their superannuation pension or annuity.

To assist retirees, the government has reduced the minimum annual payment required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities by 50 per cent in the 2019–20 and the 2020–21 financial years.

Superannuation and annuity providers calculate the minimum annual payment required at 1 July each year, based on the account balance of the member or annuitant. The 50 per cent reduction will apply to the calculated minimum annual payment.

Will you be drawing down less from your super this financial year to protect your balance through the coronavirus pandemic?

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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a Centrelink Financial Information Services officer, financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

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Written by Ben

25 Comments

Total Comments: 25
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    Yes I have stopped this part of my fortnightly money as I had already been paid over the 2.5% for the financial year as it runs financial year. If as I do, you have enough money to live on via other means, it does help your Super last a little longer. I don’t fall under the deeming rules as I retired prior to it being introduced on 1 January 2015. As this was a Govt initiative I hope I have done the right thing.

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      Everybody falls under the deeming rules.

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      If you get your drawdown Monthly I think you will still get a payment albeit at the reduced percentage you nominated. e.g. if your drawdown was 5% and you nominated the new minimum (2.5%) you will get half your previous payment.

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      Wrong Sceptic. You don’t know where I draw other income from and my account based Super is NOT deemed.

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      Wrong Again – Your balance in your account based super IS Deemed as is any other account Centrelink knows about.

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      The Care Bear – No smartarse YOU are wrong, AGAIN.

      “However, the old rules were ‘grandfathered’ for people who were already receiving account-based super pensions and the Age Pension prior to 1 January 2015, which means their super balances will be forever excluded from the Age Pension income test.”

  2. 0
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    “Will you be drawing down less from your super this financial year to protect your balance through the coronavirus pandemic?”

    Yes, we have reduced the compulsory drawdown which means no more payments this financial year. We have some savings that we can use but if the worst comes to the worst, we can resume the payments. For those who can afford it, the reduction is a help in holding the balance of the super fund and the government should be applauded for allowing this to occur.

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      If you get your drawdown Monthly I think you will still get a payment albeit at the reduced percentage you nominated. e.g. if your drawdown was 5% and you nominated the new minimum (2.5%) you will get half your previous payment.

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      Horace, agree with your strategy and we have done the same to preserve capital.Note there is mention of deeming rates applying to the balance as part of the income test, but presume if you commenced your AP after 2015 and have a balance over 823K you will be asset tested and therefore NOT eligible for a part pension. Look forward to comments

  3. 0
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    I enjoy YLC but disappointed with the misleading headline in the email,
    “Reduction In Pensions”
    when in fact it has nothing to do with the pension being reduced but rather someone drawing down from their private pension based account that like all assets can possibly reduce ones pension payments.
    Would have thought YLC need not succumb to such headline grabbing tactics. Disappointed.

  4. 0
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    Other than the one-off regional travel payment, as a self-funded retiree I have had no other government support. This pandemic has had a detrimental effect on my super fund. Now the government says I can reduce my income? Then the next article headlines bill shock. Double whammy or what?!

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    Im confused is the amount deemed from the capital or the income derived on a pre 2015 pension. The answer here says it’s on the capital in the fund.

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    “A. Your income test is assessed on deeming of the balance of your account-based income stream, not the amount that you draw down, so you will be living on a reduced income if you choose to reduce your payment.”

    I would have thought that the amount you draw down would affect the balance and therefore the income test. “Not the amount you draw down” is totally misleading.

  7. 0
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    “A. Your income test is assessed on deeming of the balance of your account-based income stream, not the amount that you draw down, so you will be living on a reduced income if you choose to reduce your payment.”

    I would have thought that the amount you draw down would affect the balance and therefore the income test. “Not the amount you draw down” is totally misleading.

  8. 0
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    Being a retired banker handling my own financial advice, I looked at the possibilities very carefully and decided to take the cut to help preserve my capital. Fortunately I receive an adequate Centrelink age pension and a partial UK pension so can manage ok. My advice to those still accumulating superannuation is to drawdown part of your mortgage in preference to draining any super. Those on annuities would be well-advised to take the 50% reduction until 30/6/21.

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      Thankyou got your reply. I just assumed if you took a 50% cut you may be entitled to a small rise in aged pension. But like you we’ll survive on less because we too have UK pensions.

  9. 0
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    The good thing is we can halve the drawdown take out lump sum when the market picks up, or if we Need it, flexibility! hopefully the market will pick up.

  10. 0
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    If your part pension is asset based and your super has taken a dive, see centrelink and get your balance adjusted. It will increase your pension, maybe quite a lot.

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