As we are all aware, many superannuation balances suffered substantial declines as a result of the Global Financial Crisis (GFC). This was especially an issue for fund members drawing an income stream (pension) from their fund.

The Government’s response was to grant relief to such pensioners from the 2009 financial year, by reducing the total amount required to be withdrawn each year. Why was that important? The reason cited the most (especially in media releases) was to allow pensioners to avoid some forced sales of investments at depressed prices following the crisis. However, the other important factor is one that works in tandem with this: in order for the income stream to be given concessional taxation treatment, the set minimum drawdown (at least) had to be taken. Adverse tax consequences arise for income streams that do not meet all requirements.

Minimum drawdown amounts were halved for the financial years ended 30 June 2009, 2010 and 2011. Since then, there has been a transitional period offering 25% drawdown relief in the 2011 and 2012 financial years, consistent with Government policy to phase out the relief.

The result is that from 1 July 2013, there has been NO drawdown relief announced, meaning that minimum drawdowns have been reinstated at pre-GFC levels. For most pensions, the minimum drawdown required is based on a set percentage, which is determined by the pensioner’s age at the beginning of the financial year. Alternatively, if the pension commences on a date other than 1 July, the percentage is determined by the pensioner’s age at that time. The relevant percentage is applied to the pension account balance on 1 July (or later relevant date) to work out the minimum amount to withdraw before 30 June 2014.

The table below sets out the minimum drawdown percentages that apply for the current financial year.

5% 95 years and over

Age

Minimum payment: % of pension account balance

Under 65 years

4%

65 – 74 years

75 – 79 years

6%

80 – 84 years

7%

85 – 89 years

9%

90 – 94 years

11%

14%

Beware

If you are currently drawing a pension, the removal of drawdown relief means that you should review your drawdowns as soon as possible (especially if you have a regular direct payment set up from your superannuation fund to your personal bank account). You will need to ensure that you can satisfy the required minimum before 30 June 2014 and consequently, some adjustments may need to be made. Carefully consider all relevant factors to avoid any nasty surprises later on – for example:

1. Did your superannuation balance increase between 1 July 2012 and 1 July 2013?
2. Which age bracket are you in? Have you moved into a higher age bracket requiring a larger percentage to be withdrawn?

If in doubt, contact our office, your superannuation fund trustee or administrator for further information.

© Power Tynan Pty Ltd