By Anthony Cullen
SMSF Technical Specialist
In the wake of the onset of the COVID pandemic, the Federal Government were quick to respond on both health and economic fronts. Off the back of the impact to financial markets, not seen since the Global Financial Crisis, one economic change the Government announced was a reduction to the minimum pension drawdown requirements for Account Based Pensions, Transition to Retirement Income Streams and Market Linked Income Streams (sometimes referred to as Term Allocated pensions).
Changes to the Superannuation Industry (Supervision) Regulations halved the minimum drawdown requirements for the 2019/20 and 2020/21 financial years. Without any further changes to the Regulations, these provisions were set to revert to their normal rates as of 1 July 2021.
On 11 May 2021, the Treasurer Josh Frydenberg handed down his third, and potentially last, budget before the next election. While there were many positives to come out of the budget from an SMSF point of view, sometimes it is the things you do not see that grab your attention. For instance in the weeks leading up to the budget we saw coverage surrounding the pending increase in the superannuation guarantee rate, from 9.5% to 10%, arguing whether it should be delayed.
Another such topic that did not get a mention was the reduced pension drawdown limits. In the weeks since the budget I have spoken to staff, professionals and trustees alike stating that with most markets back to, or around, their pre-COVID levels and with no mention of an extension to the reduced limits in the budget, it was unlikely to happen.
It turns out that the podcast I recorded last week is already dated. In the podcast with my colleague, Philip La Greca, we discussed the budget in relation to SMSFs, including the things that were not announced. On Saturday 29 May 2021, the Prime Minster Scott Morrison issued a media release announcing that the temporary reduction in superannuation minimum drawdown rates would be extended for a further year to cover the 2021-22 financial year.
The announcement suggests that the reduction will remain at the 50% level. However, it is worth noting that changes to the Regulations are still required for this to actually occur. Having said that, there is no reason to believe these changes will not go ahead. This should give some comfort to those drawing down on their superannuation and allow them to start planning for the upcoming financial year.
Although this is welcome relief for many superannuation members, it is also important to keep an eye on the current financial year requirements. With only a few weeks to go before the end of the financial year, it is important that members withdraw their minimum requirements for this year prior to 30 June.