As we return to ‘normal’ after the COVID-19 pandemic, self funded retirees will experience an increase in the minimum pension drawdown rates for the 2023/24 financial year.
Changes to Minimum Pension Drawdown Rates
The government had reduced the rates by 50% for the 2019-20, 2020-21, 2021-22 and 2022-23 financial years. This reduction was always intended to be temporary to help reduce the need for retirees to sell down investments in order to fund their minimum pensions during the pandemic. Now that financial markets have stabilised and interest rates have increased, the 50% concession has been removed.
How Will My Pension Drawdowns Be Calculated?
From 1 July 2023, pension drawdowns will need to be calculated at the rates set out in the below table, in line with the rates that existed before the COVID-19 concession was in place.
|Age at 1 July 2023||Minimum pension percentage for account-based and transition to retirement income streams for the 2023-24 financial year and onwards|
This adjustment means that retirees will be required to withdraw a larger proportion of their superannuation pension account compared to what has been required in recent years.
What Are the Consequences for Not Meeting the Minimum Pensions Requirements?
Failure to meet the minimum pension requirements will mean an individual’s superannuation pension balance revert will back to “accumulation phase”. All investment income and capital gains could be subject to tax of up to 15% in the financial year in which the minimum pension was not met (compared to 0% if the minimum pension was met).
What Action Should I Take?
Fund Investment Strategy
It may be challenging for retirees to adjust to the increased drawdown rates, especially if their superannuation’s investment portfolio is not generating the required level of income. A detailed review of the superannuation fund’s investment strategy and asset mix is encouraged to ensure the fund has liquidity and sufficient income to continue to meet its minimum pension requirements for this year and future years.
If you would like to understand how the increase in pension drawdown rates will affect you and your SMSF, please contact our Davidsons SMSF Manager Simon Abbott on firstname.lastname@example.org or (03) 5244 6867.
This article was written by Senior Accountant Tamara Wright.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.