Pension drawdown relief extended for 2009/2010 year

In the Federal Budget, the Government announced the extension of the drawdown relief provided for account-based pensions. What this means for individuals receiving superannuation income streams, is that for the 2009/2010 year, the minimum payment amounts for account-based pensions are to be halved.

In a recent article on SuperGuide, I wrote that the Federal Government had announced temporary relief for Australians drawing down on superannuation pensions for the 2008/09 year, in recognition “that the significant downturn in global financial markets has had a negative effect on retirees’ superannuation capital in account-based pensions”.

The most significant impact for retires has been the massive fall in the value of account balances forcing some retirees to sell assets in a depressed market to fulfil the minimum pension payment requirements.

This relief now also applies for the 2009/2010 year, and applies to account-based pensions and annuities (payable since 1 July 2007); allocated pensions and annuities, and market-linked (term allocated) pensions and annuities.

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.

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 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 2008. 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 temporary relief won’t be enough and they will still face the prospect of selling assets in a falling market to finance annual income streams, or to maintain their existing standard of living. 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.