Minimum drawdown rates explained:
How much, how fast?
The minimum drawdown rates for income payments from super are about to double. We mentioned this last week in our overall Federal Budget coverage. But because it can have such an impact on your retirement savings, we didn’t want this major change to go unnoticed.
Read on for a brief explainer of what super drawdowns are and how these changes may affect you.
What are minimum drawdowns?
These are the legislated minimum annual payments for super income streams within a financial year. They are applicable to pensions or annuities that have been commenced on or after 1 July 2007. Superannuation and annuity providers calculate this minimum annual payment on 1 July each year, based on the account balance of the member or annuitant.
To assist retirees during the volatile economic conditions during the Covid-19 pandemic, a temporary reduction in this amount was announced on 25 March 2020 by the Morrison Government. The 50% reduction applied to Account-Based Pensions, allocated pensions, market-linked pensions and annuities for the 2019–20, 2020–21, 2021–22 and 2022-23 financial years.
Why are they now doubling?
As explained above, the drawdown amount was halved in the financial years 2019-2020, 2020-2021, 2021-2022 and 2022-2023. This was a temporary reduction to take into account the ongoing effect of Covid-19 restrictions and lockdowns. Most households were able to save extra money during this period as there were drastically reduced opportunities to spend on consumer goods, entertainment, holidays and home improvement. With the pandemic now officially ‘over’ (at least according to the World Health Organisation) and normal activities largely resumed, the reduction is now due to end, with a return to the full percentage drawdowns on 1 July.
|Age at 1 July||New (standard) minimum drawdown rates from 1 July 2023||Previous (temporary 50%) drawdown rates until 30 June 2023|
|95 or over||14%||7%|
How will this affect your retirement income?
As noted above, with the exception of Transition to Retirement (TTR) pensions, there is no mandatory maximum withdrawal level for those receiving income streams from their super. The minimum amount is about to be higher, but it still remains below 10% of your 1 July account balance for all superannuants below 90 years of age. So around 90% of your savings can remain in super if you so desire. The challenge, of course, is working out how long your savings will last and planning for the transition to an Age Pension if these savings do fall within the asset thresholds. Happily there are useful tools to allow you to project this occurrence well in advance. If you are keen to see how the above drawdown levels (or any other amounts) will affect your super you may benefit from a consultation using the Retirement Essentials Retirement Forecaster in real time. It’s a really helpful way to better understand your spending options across the course of your retirement journey.
Or you may have some more specific questions that you want help with to determine how an alternative strategy could affect your financial position and your ability to achieve your goals. Retirement Essentials offers adviser-led strategy consultations on a range of topics. In these meetings you are able to join one of our financial advisers online where they assess your current situation and show you what an alternative option may look like. Click on one of the links below to book a strategy consultation.
- Retirement Forecasting (understanding spending options during your retirement journey, followed up with a tailored strategy paper).
- Understanding more about super (there are many options available to maximise income or wellbeing).
- Maximising your entitlements (making the most of your financial resources and Centrelink)
- Understand impacts of your home mortgage (consider your retirement journey options)
- Younger Spouse strategy (How moving assets to a younger spouse’s super can increase your entitlements)