The government has announced today (22 March) the second round of measures as part of its economic response to the coronavirus. This includes a range of measures that have a direct impact on superannuation, which includes:

This blog post is focusing on the temporary reduction of the minimum pension drawdown. You can click on the items above to be taken to the posts on other related topics.

Temporary drawdown reduction for pensions

The Government is temporarily reducing the minimum pension drawdown on super income streams for account-based pensions and similar products (e.g. Allocated Pensions, Market Linked Pensions).

The measure will benefit retirees by reducing the need of potentially having to sell investments to fund their minimum drawdown requirements.

The reduction applies for the 2019-20 and 2020-21 income years.

The table below outlines the reduced minimum percentages that will apply:

Age @ 1 July	Standard minimum pension	Reduced minimum pension (50%)
Under 65	4%	2%
65 – 74	5%	2.5%
75 – 79	6%	3%
80 – 84	7%	3.5%
85 – 89	9%	4.5%
90 – 94	11%	5.5%
95 or older	14%	7%

To understand how this works, let’s take a look at the following example:

Example 1 – reduced minimum pension calculation

Bill (64) is drawing an account based pension from his SMSF. The balance of his pension at 1 July 2019 was $600,000, which requires him to take a minimum drawdown of 4% ($24,000) for the 2019-20 income year.

As a result of the reduced minimum pension measures, this minimum pension for 2019-20 has now reduced by 50%, meaning that Bill is only required to draw down $12,000 before 30 June 2020.

Due to the impact of the coronavirus on financial markets, Bill’s account based pension balance had declined to $520,000. As a result, his minimum pension for the 2020-21 financial year is calculated to ordinarily be $26,000 (5% as he is now 65 at 1 July 2020), however a 50% temporary reduction will apply, resulting in a minimum of $13,000 to be withdrawn before 30 June 2021.

The result of this change is that Bill will be able to preserve his capital and not be placed into a forced sale position on fund assets whilst still drawing an income stream from his super fund.

Important points

Below is a list of some important points about how these measures will work, in addition to some key considerations in taking withdrawals for both the 2019-20 and 2020-21 income years:

If the member has already drawn down an amount equal to or greater than the reduced minimum amount, they are not required to take any further benefit payments before 30 June – i.e. they can stop monthly withdrawals if they want / need.
Any excess that the member has withdrawn above the reduced minimum cannot be credited back into the member’s account – this amount is simply above their (reduced) minimum pension for the year. Any such amount would need to meet the contribution rules (both eligibility and acceptance) to have such amounts credited back to the member.
Subject to the pension drawdown requirements of a member for the income year, it may be optimal for amounts above the minimum to be treated as either:
- amounts from the member’s accumulation account where it may exist due to the introduction of the transfer balance cap – this will improve a fund’s earning tax exemption for this income year and subsequent years.
- a partial commutation lump sum, rather than as a pension payment as this would create a debit against their transfer balance account. You will need to consider the timing of TBAR lodgment obligations for the fund, based upon it being a quarterly or annual reporter for these events.

You can refer to the Economic Response to the Coronavirus page on the Treasury website for further information.