Extension of the 50% reduction to minimum pension drawdown to 2022-23

As announced prior to the release of the budget and re-affirmed in the budget, the 50% reduction of the minimum pension has been extended to the 2022-23 income year: Retiree’s, accountants and advisers will need to note that:

  1. The extension is subject to the relevant legislative instrument being tabled to amend the SIS regulations, hopefully this occurs prior to Parliament being dissolved for the upcoming Federal Election;
  2. It only applies to account based pensions, transition to retirement pensions and market linked pensions;
  3. There is no reduction to the maximum pension amount for a transition to retirement pension or market linked pension;
  4. The extension of the minimum pension reduction also extends the strategy of treating any amounts drawn in excess of the reduced minimum as a partial commutation. The partial commutation will be a debit to the pension recipient’s transfer balance account (TBA) and create transfer balance cap space. It should, however, be noted that the fund will be required to prepare and lodge the relevant transfer balance account report (TBAR) for any partial commutation. The frequency of lodgement of a TBAR will depend upon whether the SMSF is an annual or quarterly TBA reporter;
  5. Those being paid an old lifetime or life expectancy defined benefit pension have again been provided with no relief to deal with volatile investment markets. They still wait for the legislation following last year’s Federal Budget to provide flexibility and the option to exit these pensions, which would allow them to commence the more flexible account based pension.

Whilst the announcement of the extension of the reduction to the minimum pension to 2022-23 has been widely welcomed, it has to be asked how this fits within the retirement income covenant. One of the key aims of the retirement income covenant is to encourage retirees to feel comfortable spending their capital. This measure encourages the opposite. While it doesn’t apply to SMSFs, the minimum pension standards applies equally to APRA funds.

The information in this document is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.