The government recently legislated a temporary reduction in the minimum drawdown rates pensioners must withdraw from their pension. We explain what this means, why you may look to take up this option, and what you can do if you choose not to.
How are pension minimums changing?
Members receiving a super income stream must draw down a minimum amount from their pension each year, expressed as a percentage – or “drawdown rate”. For the 2019/20 and 2020/21 financial years, the drawdown rates have been reduced by 50%.
The temporary minimum drawdown rates are:
Standard minimum drawdown rates
Temporary minimum - reduced by 50%
95 and older
If you are a Term Allocated Pension member, your pension payment amount is based on your account balance at 1 July each year and the term remaining on your account. While normally Term Allocated Pension members are unable to amend their pension payment amount, you have the option to temporarily reduce the pension drawdown amounts applied to your Term Allocated Pension by up to 50%.
Why you may look to take up this option
The investment options offered through Allocated Pensions like OneAnswer Frontier Pension are in many cases invested in assets such as Australian shares and international shares, and so subject to volatility. In the wake of COVID-19, the value of investment markets and therefore the value of many Pension accounts has dipped dramatically in some cases.
While, over time, this value is likely to recover, the nature of a pension (drawing down over time) means that in some cases devalued investments are being sold to fund regular pension payments – before the investments have time to recover their underlying value. This could potentially have the effect of reducing the longevity of the pension.
The option to draw down a lesser amount gives more of your investments time to recover, potentially helping to preserve the life of your pension.
Read the government factsheet for retirees for more information.
But what if I need the amount I currently receive from my pension?
It’s important to note that ultimately, the choice is yours.
If you are currently receiving the minimum, you will automatically be allocated the temporary minimum in the new financial year (starting 1 July 2020), but you can opt to change this and set your own amount as long as the elected amount is above the temporary minimum requirement.
Alternatively, if you have elected to receive a specific amount that is above the minimum, you will continue to receive that amount unless you (or your adviser) communicate alternative instructions.
How do I keep my payments at the current level in the new financial year?
OnePath will send all Pension members a letter with more detail around your options, as well as instructions for informing us of your wishes.
This article is issued by OnePath Custodians Pty Limited (OnePath Custodians) ABN 12 008 508 496, RSE L0000673, AFSL 238346.
OnePath Custodians is a member of the IOOF group of companies, comprising IOOF Holdings Ltd (ABN 49 100 103 722) and its related bodies corporate. Neither OnePath Custodians nor any other related or associated company guarantee the repayment of capital, the performance of, or any rate of return of an investment with OnePath Custodians. An investment is subject to investment risk, including possibly delays in repayment and loss of income and principal invested. Past performance is not an indication of future performance.
The information provided is of a general nature and does not take into account your personal needs, financial circumstances or objectives. Before acting on this information, you should consider the appropriateness of the information, having regard to your needs, financial circumstances or objectives.