The measure was introduced in response to the heightened volatility on financial markets triggered by the COVID-19 pandemic, essentially to provide relief to those retirees using self-funded pension income streams.
At the same time, the Government announced it was further reducing social security deeming rates to reflect the impact of low interest rates on retirees' savings. The lower deeming rates will potentially help some retirees who may not have been eligible for the Age Pension to pass the existing income test limits.
Meanwhile, the 50 per cent reduction in the amount retirees are required to withdraw from their superannuation account balance annually, depending on their age, will help individuals and couples preserve more of their investment capital.
Retirees are required to pull money out of their superannuation savings at set percentage rates, essentially to reduce the amount of capital that is being held in the tax-free pension earnings environment.
Source: Australian Government
The latest data on retiree numbers from the Australian Bureau of Statistics shows there were 3.9 million retirees in the 2018-19 year. But that number is likely to have spiked as a result of many older working Australians having lost their jobs during the current crisis.
It's probable that a sizeable number, already at their superannuation preservation age, will have officially moved into retirement and activated a pension drawdown account using their superannuation.
Knowing the new drawdown rules is imperative for all retirees drawing a self-funded pension.
For retirees running their own pension account through a self-managed structure, the changes to the mandatory withdrawal rates are very straightforward.
All that needs to happen is that the revised minimum percentage amount is withdrawn from your account before the end of the financial year, based on your account balance.
That's a big bonus for those not needing to draw down the normal rate of funds from their account to cover their living costs.
The same could be the case for many of those using third-party account-based pension managers.
If you do use a third-party account manager, however, it's important to be aware that the minimum drawdown changes could impact your regular pension payment amounts from the start of this new financial year (if they haven't already).
The issue is that the wording on the Government's fact sheet around its revised drawdowns legislation doesn't have any specifications around how the rules are to be applied by external managers.
Some of the superannuation funds managing account-based pensions may have automatically set their members' payments to the lower new minimum drawdown levels.
In this scenario, pension payment amounts will be reduced by 50 per cent unless you contact your fund manager and submit a request to change your pension payment amount.
Alternatively, other account managers may have left the default drawdown limits in place, with the onus on members to contact them to request the new reduced account withdrawal rates.
Those wanting to take advantage of the lower withdrawal requirements will similarly need to contact their pension fund manager and submit a request to change their pension payment amount.
Retirees using third-party providers should already have been contacted about the drawdown changes and been advised of their options.
To avoid any potential changes to your normal pension payments, or to take advantage of the temporary lower required drawdown limits, you should contact your account administrator as soon as possible.
Pension withdrawal amounts can easily be changed to higher amounts at the request of the account holder.
Before making any financial decisions, it's important to assess your current and future income needs.
Changes to pension withdrawal amounts can potentially impact the amount of government Age Pension a person is entitled to receive.
It may be useful to contact a financial adviser to discuss your plans.
Personal Finance Writer
30 June 2020
BEc (Acc), MBA, CPA, FFin
David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.
David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.
Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.
David maintains a strong personalised client service focus, providing tailored solutions for clients.
David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Business Finance Manager
B Bus (Acc), CPA
Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.
Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.
With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.
B Com, Dip FP
Darren joins the Integrity team as a strong technical specialist with almost 20 years’ in the Financial Services industry. He has extensive experience advising clients on how to build and protect wealth, prepare for retirement and retire comfortably.
Commencing with advising clients on direct equities for over 10 years at Baker Young, Tolhurst Noall, and ABN AMRO Morgans, his career expanded to providing holistic client advice, having operated his own financial services licence and company. Most recently having worked for a 'Big 4' bank, he has welcomed the more personalised ‘client first’ approach that is evident at Integrity Financial Advisory.
With a deep understanding of investment markets, he is appropriately qualified and authorised to provide direct share advice, as well as superannuation/SMSF advice, encompassing both investments and insurance.
Meticulous in his approach, he aims to deliver quality outcomes for clients by understanding their financial situation and needs before providing advice which is central to our advice process. Darren supports David in tailoring solutions for all client financial advice needs.
Darren Chalk is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Client Service Manager
Natasha commenced working in the financial services industry in June 2008 and is a new addition to the Integrity team. During the past 11 years, she worked closely with advisers providing administration support in a share broking and financial advice business.
Having successfully completed her RG146 accreditation in securities and managed investments and continued her studies to complete her competency in Superannuation, Natasha can ably assist with all aspects of fixed interest, cash management, portfolio administration, direct shares and client advice implementation.
Natasha takes time to ensure she understands our client’s financial goals and needs and believes in creating, preserving and utilising wealth through effective financial management as a key objective in helping clients.
Client Service Manager
Kelly has worked in the Financial Services Industry for over 10 years and has supported David since 2013. Kelly’s primary background is in customer service and administration.
On starting in the industry, Kelly initially focused on direct shares, stockbroking administration and client liaison. Since moving to the Client Service Manager role, Kelly has developed skills encompassing all aspects of financial planning including client advice implementation and term deposit management.
Kelly’s experience in the direct share environment, especially management of estates, provides a key part of the direct equity expertise in Integrity’s Client Service Team.
Returning from Parental Leave following the arrival of her second child, Kelly has developed further honed multi-tasking skills after juggling the demands of a growing family.
Client Service Manager
Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.
Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.
Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.
Jasmine has gained her Certificate III in Financial Services qualification.
Client Service Manager
Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.
Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.
Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.