The Federal Government has brought in changes to help people in retirement who hold pensions and annuities.
The government is temporarily reducing the minimum amount you can withdraw from your pension for this financial year and the next. While not everyone will be in a position to do this, it may be helpful for retirees who want to conserve their assets now and avoid selling after markets have fallen.
This episode in our Q&: Understanding Retirement series looks at the Australian Government’s temporary reduction of the minimum pension withdrawal amounts.
Find out how these changes affect the minimum payment amount you must withdraw from your pension this financial year, and also learn whether taking the minimum drawdown amount is the best approach for you.
Each financial year, the government requires you to withdraw a certain amount from your pension – this is called your minimum income amount. The government has reduced this minimum amount temporarily, which means you’ll withdraw less income from your pension, leaving more in your account for later.
For those with account-based (allocated) pensions and annuities, your minimum income amount is calculated on 1 July each year by applying your age-based percentage to your account balance.
For the 2019-20 financial year
You can choose to reduce any upcoming payments subject to the new minimum pension amount. If you’ve already received the reduced minimum income amount for this financial year, you can choose to cancel further payments until 30 June 2020.
For any accounts opened after 30 March 2020 the new minimum income amount will automatically apply if you elected to receive the minimum payment. You can also choose to receive a higher payment if you prefer.
For the 2020-21 financial year
If you’ve elected to receive the minimum pension payment, the new minimum pension rates will be automatically applied to your account for the 2020-21 financial year.
AMP has automatically reduced pension payments for 2020-21
AMP has decided to automatically apply the reduction to the 2020/21 financial year to any members who have chosen to receive minimum income payments from their income stream account.
This decision was taken to help AMP members preserve their capital because once you withdraw money from your pension account you're unable to put it back. If you find the reduced amount is too low and doesn't meet your financial needs you may increase your regular payments or request an additional payment if you need to access extra funds immediately. Please consider any taxation and social security impacts before making any changes.
Minimum annual income amounts
The minimum income amount has been reduced by 50% for the 2019-20 and 2020-21 financial years, and below are the previous and new minimum income rates for different age groups:
|Age||Standard rates (currently shown in your PDS) % of your account balance||Reduced rates for 2019-20 and 2020-21 % of your account balance|
|95 or more||14%||7%|
After 30 June 2021, the standard rates will be reinstated.
For those with term-allocated pensions, your annual payment will be calculated on 1 July 2020. So, if you’d prefer to receive a lower payment than what’s calculated for you, you can reduce it to as low as 45% of your annual payment amount.
How to make changes to pension payments
It’s a good idea to check your current pension payment arrangement before making any changes. If you’re an AMP client, you can do this by logging into My AMP.
If you’d like to change your pension payment amount, frequency or date, you can:
You can also find out more, including how to make changes for your particular AMP pension account, by checking out the frequently asked questions.
Here are some examples
After a lifetime of hard work and raising a family, Hoang (66) is enjoying his new-found freedom in a well-earned retirement.
He’s partly funding his retirement with an account-based pension that he withdraws the minimum amount from each year.
Hoang has $500,000 in his account on 30 June 2020 so in the normal course of events he’d withdraw $25,000 for the 2020-21 financial year, representing 5% of his balance.
But this is far from a normal year. In response to the COVID-19 crisis, the Federal Government has granted a temporary 50% reduction in the minimum pension drawdown for 2020-21.
So, Hoang doesn’t need to withdraw as much from his account-based pension.
Hoang has a decision to make. Depending on his income needs, he could:
- continue to draw $25,000 in 2020-21 or
- reduce his income payments to the new minimum of $12,500
As with any account based pension, Hoang still has the opportunity to receive more income from his account if needed, but his new option in 2020-21 is to reduce his annual withdrawal to the minimum of 2.5% of his balance, being $12,500.
As he’s previously chosen to receive the minimum each year, his pension provider may automatically reduce his payments to $12,500. (If Hoang’s pension is with AMP, he will automatically have the new legislative minimum applied to his account.)
So, he’ll need to get in touch with his pension provider to find out how they are implementing the drawdown changes and also let them know what he’d like to do.
Whatever Hoang decides, it’s important he checks with his pension provider in order to ensure these changes suit his lifestyle and requirements
Robyn (60) is enjoying the best of both words. She’s cut down her hours to free up her time but she’s still working for a few days a week and has a transition to retirement pension to help top up her income.
Robyn has chosen to withdraw the minimum pension amount each year to add to the income she receives from her employment.
Her normal minimum pension for the 2020-21 financial year would be $10,000, representing 4% of Robyn’s $250,000 account balance at 30 June 2020.
But this is far from a normal year. In response to the COVID-19 crisis, the Federal Government has halved the minimum withdrawal amount for 2020-21 to ease the financial pressure on Australians funding their retirement.
So, with the temporary 50% reduction, Robyn only needs to take out $5,000 in 2020-21.
Robyn has a choice to make. Depending on her income needs, she can:
- continue to draw $10,000 in 2020-21 or
- reduce her income payments to $5,000
With a transition to retirement pension, Robyn does have a maximum income limit of 10% so she can choose to receive income payments of between $5,000 and $25,000 in 2020/21.
(If Robyn’s pension is with AMP, she will automatically have the new legislative minimum applied to her account.)
So, it’s important for Robyn to check with her pension provider to make sure understands how her provider is implementing the drawdown changes so she receives the amount she needs.
Whatever Robyn decides, she’ll need to check with her pension provider that any changes to her transition to retirement pension will suit her requirements
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