A government change to superannuation pension payments announced in March could catch out many older Australians when it takes effect on 1 July.
In response to the COVID-19 pandemic, the government announced a temporary 50 per cent reduction in the superannuation minimum drawdown requirement for account-based pensions and similar products for 2019-20 and 2020-21.
What this means is that for some retirees receiving the minimum payment amount from their income account at 30 June this year, the 50 per cent reduction will be automatically applied and their income payments will be reduced unless they take action before their first payment date in July.
Only some super funds are making this change automatically, however, as others are only making the change when they are requested to do so by pension recipients.
The change will not have an effect on those retirees who are receiving an amount more than the minimum drawdown, although there is an option to reduce your payments if you want to try to preserve your balance during the tough economic times.
The minimum payment amount from account-based pension is a percentage of the income account balance at the start of the financial year, or the date your income account started.
The government announced the change in March to provide retirees with more flexibility while markets were volatile.
The change allows retirees to choose to leave more of their retirement savings invested over a longer period, which allows them to keep more funds in their account as markets recover from the pandemic. This measure was also put in place during the global financial crisis.
If you want to make changes to your regular account-based pension payments, you can choose to receive a:
– Specified amount – Set payments at a specified amount above the temporary minimum. This could help provide certainty for budgeting.
– Reduced minimum – Apply to reduce your income account payments to the new minimum payment amounts. If you’re already receiving minimum payment amounts, the 50 per cent reduction will be automatically applied for the 2020-21 financial year by some super funds.
– Non-reduced minimum – Continue to receive the payments at the rate you have been receiving them prior to the change taking effect. If you are receiving the minimum pension payment this change needs to be made before the first July payment for it to apply for the 2020-21 financial year with some super funds.
Were you aware of the coming change to account-based pension payments? Are you changing your payment or will you accept the 50 per cent reduction in payments?
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