Minimum pension drawdown – reduced amounts to continue

The government has announced that it will extend for another year the 50 per cent reduction in the required minimum payment amounts that must be made from account-based, allocated and market-linked pensions.

The minimum amounts had been reduced for the 2008 – 09 and 2009 – 10 financial years. This means, for example, that the minimum annual drawdown for 2010 – 11 for someone aged 64 years or less will remain at 2 per cent; and for those aged 65 – 74, will be 2.5 per cent.

Self-funded retirees – minimum pension rules eased – temporarily

Treasurer Wayne Swan and Senator Nick Sherry, Minister for Superannuation and Corporate Law, today announced relief from minimum account-based pension draw down requirements.

The measure responds to concerns that meeting the minimum draw down amount in 2008?09 will mean having to sell investments assets and realise losses in a depressed market.

“The Government recognises that the significant downturn in global financial markets has had a negative effect on retirees’ superannuation capital in account-based pensions,” the Treasurer said.

“In response to these legitimate concerns, the Government will suspend the minimum drawdown requirement for account-based pensions for the second half of 2008-09,” Minister Sherry said.

“This will occur through a 50 per cent reduction in the minimum payment amount for 2008?09,” Minister Sherry said.

The temporary relief also addresses the concern that the minimum draw down requirement was set based on asset values as at 1 July 2008, when equity values were higher.

For those people who have already taken half of the current minimum payment for 2008-09, the annual nature of the minimum payment rules means that a further payment will not be required until the end of the 2009-10 year.

“The Government will continue to closely monitor market conditions and examine options for a longer term solution to this issue following the Australia’s Future Tax System Review,” the Treasurer said.

Currently, it is a requirement that minimum payments be made from a superannuation account-based pension at least annually. Minimum payments are determined by age and the value of the account balance as at 1 July each year. The minimum annual payment rule is designed so that retirees draw down on their superannuation capital over their retirement. This rule recognises that superannuation is designed as a retirement savings vehicle with substantial tax concessions.

The temporary suspension of the minimum payment requirement will apply to account?based annuities and pensions (payable since 1 July, 2007); allocated annuities and pensions (pre-dating the Better Super changes); account-based and allocated pensions payable from Retirement Savings Accounts, and market-linked (term allocated) annuities and pensions.

Economic Security Strategy package released

The Federal Government has released a $10.4 billion Economic Security Strategy to strengthen the Australian economy. The package contains the following key measures:

  • · $4.8 billion in new support for pensioners and carers, including a lump sum payment of $1400 to single pensioners and $2100 to pensioner couples. People who are receiving carer allowance will also receive $1000 for each eligible person in their care. These payments will be made from Monday 8 December and are intended to provide additional support in the nine months between now and when long-term reforms are introduced from the beginning of the next financial year.
  • ·Self-funded retirees who are eligible for a Seniors Concession Allowance or hold a Commonwealth Seniors Health Card will also receive a payment of $1400 for singles or $2100 for couples.
  • · $3.9 billion in support payments for low and middle income earners through a one-off payment of $1000 for each eligible child in their care. These payments will be made from Monday 8 December.

    • · $1.5 billion for first home buyers under a newly announced First Home Owners Boost with effect from Tuesday 14 October – all contracts entered into by 30 June 2009 will be eligible for this new additional assistance:
      • first home buyers who purchase established homes will receive the grant, which they are currently entitled to doubled from $7000 to $14,000
      • first home buyers who purchase a newly-constructed home will receive an extra $14,000 to take their total grant to $21,000

    The government claims that this $10.4 billion strategy will be entirely funded from the budget.  Treasury advises that the Budget will be in surplus after these measures.