The federal government has announced the 50 per cent reduction in the minimum pension drawdown will continue for another year, citing ongoing volatility for the retention of the measure first introduced during the 2020 financial year.
The budget announcement was initially flagged over the past weekend, but was confirmed last night in the budget papers, which indicated the minimum drawdown requirements for account-based pensions and similar products would continue until 30 June 2023.
“The minimum drawdown requirements determine the minimum amount of a pension that a retiree has to draw from their superannuation in order to qualify for tax concessions,” Budget Paper 2 stated.
“Given ongoing volatility, this change will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirement.
“This measure is estimated to decrease receipts by $50.0 million and increase payments by $2.8 million over the forward estimates period.”
SuperConcepts SMSF technical and strategic solutions executive manager Phil La Greca said the rationale behind the decision was sound as it was one of the reasons for the initial reduction in 2019/20.
“The reduction to 50 per cent was because interest rates were low and volatility high due to COVID-19 and since then we have come out of that wave of volatility,” La Greca told smstrusteenews.
“Interest rates are still low but expected to increase and with the war in Ukraine volatility has returned to the market, so this measure will go for another year and is unlikely to cause too many issues.”
The move was welcomed by SMSF Association chief executive John Maroney, who said it was one of the few changes to the superannuation system in this year’s budget.
“The reduction is designed to reduce instances where retirees may have to sell some superannuation investments in a volatile or depressed investment market simply to satisfy the government’s minimum pension drawdown requirements, so in the current geopolitical and COVID climates, extending the cut in drawdown rates is an important initiative that will help many retirees,” Maroney said.
Financial Services Council (FSC) acting chief executive Blake Briggs said the measure built on a commitment by Treasurer Josh Frydenberg to maintain stability in superannuation.
“Retirees will welcome the extended reduction in the minimum superannuation drawdown requirements, as well as the targeted cost-of-living support for Australian pensioners and self-funded retirees,” Briggs said.
“Superannuation consumers are facing a challenging economic environment and need certainty and stability in their superannuation savings.''