Reduced Minimum Annual Payments
The temporary reduction in the minimum pension withdrawal rates will benefit retirees that have account based pensions and similar products. The table below shows the temporary rates for the 2020/21 financial year as well the normal rates for prior years:
|Age||Temporary Percentage Factor |
(2019/20 and 2021/21)
|Normal Percentage Factor|
(2013/14 to 2018/19)
|65 to 74||2.5%||5%|
|75 to 79||3%||6%|
|80 to 84||3.5%||7%|
|85 – 89||4.5%||9%|
|90 – 94||5.5%||11%|
|95 or more||7%||14%|
Review Your Minimum Withdrawals Till Date
As a retiree, if you have not already reduced your minimum withdrawals for the 2020/21 year to account for the above change, there is a possibility that you will have met your minimum payments by December 2020. Should you wish to reduce your withdrawals, we recommend that you contact your Altitude Adviser to discuss switching off pension payments for the next 6 months.
Regular Payments vs. Lump Sum Payments
There are two options to assist you with meeting your minimum pension requirements: regular payments or a lump sum.
Regular periodic payments provide certainty, consistency and assist with attending to your lifestyle needs.
A lump sum paid in June each year or as required, can assist with personal finance management by topping up cash in your personal account. You are able to keep your money in the superannuation environment for longer but this option requires more management and planning to ensure that you are meeting your minimum pension requirements.
Please also note that selecting lumpsum or regular payments may have implications for Centrelink purposes. Any account-based pension commenced on or after 1 January 2015 will be treated as a financial asset and deemed under the Centrelink income test. Therefore, there is no difference for Centrelink assessment whether you take a regular payment or a lump sum.
However, for account-based pensions commenced prior to 1 January 2015 regular pension payments and lumpsum are treated differently. The calculation used to calculate assessable income for these pensions = the regular pension payments minus the deductible amount. The deductible amount is calculated by dividing the members opening balance by the members life expectancy.
For example, if your pensions payments were $40,000 for the year but you have a deductible amount of $32,500, then your assessable pension income is only $7,500 for the income test. If you decided to take $80,000 for the year as regular pension payments this would mean your assessable income is now $47,500. However, if you took the additional $40,000 as a lumpsum, the lumpsum is treated as a commutation and reduces your opening balance when calculating the deductible amount. Your regular pension income stays at $40,000 but your deductible amount reduces to $31,000.
In this case, your assessable pension income would be $9,000. These are just illustrative figures but you can see that if you are close to the Centrelink Income thresholds and you elect to treat all withdrawals as regular, this could put you over the thresholds and you can end up losing your age pension payments. Therefore, a typical strategy is to take your minimum pension as regular payments and any extra as lumpsums but this always depends on a member’s situation as to whether this is advisable.
With Christmas just around the corner, now is a good time to take stock of your financial situation. Should you wish to discuss further, please contact your Altitude Adviser today.
Altitude Financial Planning is a Corporate Authorised Representative of Altitude Financial Advisers Pty Ltd
ABN 95 617 419 959
The information contained on this website is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and read the relevant Product Disclosure Document.