Older Australians will benefit from this year’s Budget as the government introduces changes to the superannuation contribution scheme aimed at giving retirees more flexibility.
Among all the talk of one-off payments and fuel excise, Treasurer Josh Frydenberg confirmed one of his pre-Budget announcements by extending the 50 per cent reduction in minimum superannuation drawdowns until 30 June 2023.
Originally introduced in the 2019-20 financial year as a measure to help retirees get through the pandemic, the drawdown extension aims to help a core government constituency ahead of a May election.
Under the reduced drawdown rules, self-funded retirees aged between 65 and 74 must withdraw 2.5 per cent of their super account balance each year in order to keep the tax-free status on their earnings.
The percentages then go up as you age, so the rate is currently 3 per cent for ages 75 to 79; 3.5 per cent for ages 80 to 84; 4.5 per cent for ages 85 to 89; 5.5 per cent for ages 90 to 94; and 7 per cent for ages 95 and above, while a rate of 2 per cent applies to those under 65.
Around 1.8 million super accounts are subject to the minimum drawdown requirements that apply to account-based pensions. It’s estimated the extension will cost $52.8 million over the forward estimates period.
“Many older Australians don’t understand why they’re forced to withdraw set amounts of savings from superannuation,” says Ian Henschke, chief advocate at National Seniors Australia (NSA).
“They worry this will erode their nest egg and therefore their income later in life, when they face unknown medical and aged care costs.”
While the move is aimed at the older generation as a whole, the Self-Managed Superannuation Fund Association (SMSFA) says the drawdown reduction overwhelmingly favours wealthy individuals.
“Retirees who may have other sources of income [other than pensions], or who simply don’t need to draw down the normal minimum amount each year, will benefit most,” says SMSFA deputy CEO Peter Burgess.
“For retirees who don’t need to withdraw the normal prescribed minimum amount, this measure will enable them to withdraw less from their super pension account than would otherwise be required. This means they can retain more in their super pension account – which is a tax-free requirement – for longer.”
As well as the extended super discount, older Australians who receive the Age Pension and hold a Commonwealth Seniors Health Card will receive a one-off $250 payment to help with the soaring cost of living.
The fuel excise was also cut by 22.1 cents per litre for six months, helping to address transport costs.
Any extra cash in your pocket is welcome, but NSA questioned how far $250 would go towards tackling the cost-of-living issues faced by older Australians living on the pension.
“Pensioners and Commonwealth Seniors Health Card Holders welcome the federal government’s one-off payment of $250 per person to help with soaring cost-of-living prices. However, if a landlord increases rent by as little as $5 a week, this money is gone – and rent is only one example,” Mr Henschke says.
In addition to measures aimed at dealing with the cost of living for seniors, the Budget also had extra money for the residential aged care sector, particularly for food and medication management.
But Mr Henschke says this fails to address the pressing need for a funding boost in home care, where most older Australians would prefer to be.
“While the government has significantly cut the waitlist [for home care] over the past three years, it’s in danger of going backwards if there are not enough workers to meet demand,” Mr Henschke says.
“NSA recommended a Mature Age Traineeship Program to help meet these urgent frontline workforce needs, and a downsizing incentive to help people stay safe in their own home and out of residential aged care, but neither were adopted.
“We also hoped for more affordable supported social housing for the growing number of impoverished pensioners as an alternative to residential aged care.”
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