What a relief! Minimum pension payments reduced by 25% for 2011/2012 and 2012/2013 years

Note: The relevant regulations extending the pension payment relief for the 2011/2012 year are in place. For verification, see Schedule 7 of the Superannuation Industry (Supervision) Regulations 1994 or Superannuation Industry (Supervision) Amendment Regulations 2011 (No. 1). The regulations for the pension relief for the 2012/2013 year will be in place before January 2012.

The Government has announced that pension payment relief will be available for the 2012/2013 year as well as for the 2011/2012 financial year. This is great news for retirees suffering through the poor-performing sharemarkets but I had hoped that Australians still recovering from the Global Financial Crisis would receive the 50% drawdown relief on account-based pension minimum payments that they had received for the previous 3 years. I had also hoped the Federal Government would have increased the 25% relief to 50% relief for the 2011/2012 in light of the shocking investment markets this financial year.

Okay, 50% relief is no longer available but the good news is that you can still take advantage of a certain level of drawdown relief, but just not as much relief as in earlier years. The Federal Government has deemed that you only have to withdraw 75% of the legislated minimum pension payments for the 2011/2012 and 2012/2013 years.

What the modified extension of payment relief means for individuals receiving superannuation income streams, is that for the 2011/2012 and 2012/2013 years, the minimum payment amounts for account-based pensions will be 75% of the normal requirements. For example, an individual aged 65 must withdraw 3.75% of his account balance for the 2011/2012 year, rather than 5% under the regular minimum pension payment rules.

Presumably, like previous years, 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. The changes have been made for the 2011/2012 year but are yet to be made for the 2012/2013 year.

I have received many emails from readers asking me about whether the drawdown relief for the 2011/2012 year will increase to 50% so I imagine Bill Shorten’s announcement may be a little disappointing. For other readers, any relief may potentially be great news for retirees taking superannuation pensions, especially those still trying to rebuild account balances savaged during the Global Financial Crisis.

The minimum pension payments will return to normal from the 2013/2014 financial year.

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, and 29 November 2011. Figures for 2011/2012 year and 2012/2013 year calculated by Trish Power.

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 3.75% of your account balance as at 1 July 2011 (for the 2011/2012 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 $18,750.

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