Update: The relevant regulations extending the pension payment relief for the 2010/2011 year are now in place. For verification, see Schedule 7 of the Superannuation Industry (Supervision) Regulations 1994.
Finally, we have some good news for those retirees struggling to recoup savaged investment earnings from the ever-choppy investment markets.
The drawdown relief provided for account-based pensions during the 2009/2010 and 2008/2009 financial years will NOW be extended for the 2010/2011 year. This is great news for retirees attempting to preserve capital, although the announcement may be cold comfort for those retirees who still need to sell assets to provide a regular income.
Briefly, what the extension of payment relief means for individuals receiving superannuation income streams, is that for the 2010/2011 year, the minimum payment amounts for account-based pensions will continue to be half of the normal requirements. For example, an individual aged 65 must withdraw 2.5% of his account balance for the 2010/2011 year, rather than 5% under the regular minimum pension payment rules.
In a previous article, I reported that the Government had been silent on the issue in the Henry Tax Review report, and in the Federal Budget, which implied retirees taking superannuation pensions were entering the new financial year with expectations that pension payments would be back to normal. I believe that the Government were not going to provide temporary pension relief, but due to intense lobbying by certain groups (and hopefully SuperGuide’s efforts as well), the Government realised the severe financial impact for retirees being forced to sell assets at a loss, rather than allowing retirees to preserve capital.
Quoting from the Government’s 30 June 2010 release:
Many self-funded retirees with account-based pensions have suffered significant capital losses on their pension portfolios due to the impacts of the global financial crisis.
The Government applauds the efforts of self funded retirees who have saved to fund their own retirement. We understand that the global financial crisis is having an ongoing impact on the portfolios of self-funded retirees.
While equity markets have recovered to an extent over the past year, they remain well below the levels reached prior to the onset of the global financial crisis.
The temporary minimum pension payment relief applies to account-based pensions and annuities (payable since 1 July 2007); allocated pensions and annuities, and market-linked (term allocated) pensions and annuities.
This change requires amendments to the Superannuation Industry (Supervision) Regulations 1994 and the Retirement Savings Accounts Regulations 1997. According to the Government, the necessary regulations will be made as soon as possible in the new financial year.
As I wrote in an article on this topic just two weeks ago, extending minimum payment relief has minimal effect on Australia’s bottom line but has the potential to dramatically improve the future financial health of our country’s retirees. I have rewritten the relevant sections of this earlier article (see below) to explain the general rules applicable to minimum pension payments.
I consider this great news for retirees taking superannuation pensions because many Australians are still trying to rebuild account balances decimated during the Global Financial Crisis, and knocked around by the still volatile investment markets of the past few months.
Minimum annual pension (income stream) payments
| Regular Percentage factors | Temporary relief | ||
| 2010/2011 year | 2009/2010 year | ||
| Age | |||
| 55-64 | 4% | 2% | 2% |
| 65-74 | 5% | 2.5% | 2.5% |
| 75-79 | 6% | 3% | 3% |
| 80-84 | 7% | 3.5% | 3.5% |
| 85-89 | 9% | 4.5% | 4.5% |
| 90-94 | 11% | 5.5% | 5.5% |
| 95 or older | 14% | 7% | 7% |
Note: Amount calculated on 1 July each year, unless first year of account-based income stream, and then pro-rated from commencement day. Minimum amount to be rounded to nearest $10.
Source: Adapted from Schedule 7, Superannuation Industry (Supervision) Regulations 1994 and Federal Government news releases dated 18 February 2009, and 12 May 2009, and 30 June 2010.
Background: If you have an account-based pension (or the older-style allocated pension) you must pay a minimum amount at least annually. If you’re aged 65 to 74, the usual minimum pension payment for an account-based pension is 5% of your pension’s account balance. Under the temporary relief, you are required to withdraw a minimum of 2.5% of your account balance as at 1 July 2010 (for the 2010/2011 year). For example, Robert is 68 and has $500,000 in his pension account. His minimum pension payment is $25,000 under the regular pension payment rules, but under the temporary relief his minimum payment is $12,500.
Unfortunately, for some retirees the temporary relief isn’t enough and they still face the prospect of selling assets in a falling market to finance annual income streams, or to maintain their existing standard of living.
Returning to work?
If you’re facing a severe cash crisis, then you could consider returning to the workforce to boost your super savings or to supplement your pension income. Many retirees continue to work in some form even when they have started an income stream. A popular question that many retirees ask, is whether they can still contribute to super, notwithstanding they are already drawing an income stream from a super fund.
The answer is ‘yes’ in most cases. If you’re under the age of 65, you can make super contributions without having to satisfy a work test. If you’re aged 65 or over (but under 75), then you must satisfy a work test to be able to contribute to a super fund. The work test is not onerous – you must work 40 hours in a 30-day period during the financial year in which you intend to contribute. If you aged 75 or over you cannot make any super contributions.
Tip: You could also consider whether you’re eligible for a part-Age Pension. Any change in your financial circumstances may mean that you become entitled to the Age Pension for the first time, or, if you already receive some Age Pension, a greater entitlement. Returning to work may also affect your Age Pension entitlements.
Temporary pension relief is… temporary
No pension relief for early birds
Relief in hard times for retirees
Minimum pension payment: At what date do you determine the age for payment calculation?
DIY super: Age Pension relief for SMSF lifetime pensions
Hi - I'm Trish Power, author of 
Can you explain what “annual adjusted taxable income” means in relation to the Commonwealth Seniors Health Card —in particular the wording “adjusted”.
Quoting from the Centrelink website, the meaning of ‘annual adjusted taxable income’ from July 2009 is:
“The adjusted taxable income test for CSHC will include:
assessment of total net investment losses. Total net investment losses are the sum of net losses from rental property income and net losses from financial investment income, and subject to the passage of legislation, reportable superannuation contributions may be included in the adjusted taxable income test for CSHC. Reportable superannuation contributions are discretionary or voluntary contributions, for example salary sacrifice contribution and personal deductible contributions.
Note: losses from rental properties are already included in assessable income for CSHC. From 1 July 2009, the adjustable taxable income test will also include losses from financial investments.”
Legislation has already passed to include reportable superannuation contributions, which means that salary sacrificed and tax-deductible contributions count towards the income test from July 2009.
[...] Tax-free super: what happens when I start a pension just before turning 60?By Trish Power on February 23, 2010 Hello there! If you are new to SuperGuide, you might want to subscribe to our newsletter for tips and all the latest information on superannuation.Newsflash: Temporary relief for minimum pension payments is not available for the 2010/2011 year. For more information see our article How mean! Minimum pension payment relief NOT extended for 2010/2011 year. [...]
This is great news! Thank you for having highlighted this issue and having contributed to bringing about this most welcome extension of this relief measure!
Posted on Hot Copper today
What is going on?
Hi Dino3
I was talking to the ATO Superannuation area (Ph 131020) at about 9.00AM this morning
The young lady I spoke to seemed somewhat unsure of herself but said she had seen circulars around her department which indicated the 50% reduction had been extended to the 2010/11 year but when I asked her where I could find it on the ATO website she referred me to the following
“The government has announced changes that, if agreed to by parliament, will extend the reduction in the minimum payment amounts until 2010-11. We will publish updated guidance if these announced changes become law.”
When I pointed out that wording was not definite enough for me she put me onto Superannuation specialist(Michael)
who confirmed that the extension has not as yet become law
He commented that the government is now in caretaker mode and depending on who wins the election it may never become law
I would be very interested to know the source of the email you received confirming that it has become law
Vince
Hi Vince
Many thanks for your comment. The source of the announcement is a Government media release and the changes necessary will be to the Regulations rather than the Act. Even so, the Regulations still have to be tabled in Parliament (they don’t have to be voted upon, just that no one objects within, I think, 14 days of tabling the regulations) which will now have to wait until after the election.
If you read the article in full, you will see that I outline that the regulations have to be amended before the extension takes effect, and that I quote from the Government’s 30 June 2010 media release.
The Government indicated that this amendment would be made as soon as possible into this financial year, so it was safe to assume those Regulations would have been made by now (if the election had not been announced).
I doubt that the Coalition would renege on this promise, but I will include a note at the top of the article that the regulations have not yet been amended due to the election announcement.
Even so, I stand by the accuracy of the article as announced by the Government, and outlined in the body of the article.
Regards
Trish
Hi Vince
The regulations have now been amended giving effect to the extension of the pension paymenr relief. For more information refer to http://www.austlii.edu.au/au/legis/cth/consol_reg/sir1994582/sch7.html
Regards
Trish
[...] For more information on how the minimum pension payment rules operate read the article What a relief! Minimum pension payments halved for 2010/2011 year. [...]
Thanks very much for this definitive information – it is REALLY useful, and not available anywhere else that I could find. Greatly appreciate the information you provide.