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Income stream annual drawdowns factors

Section: 6.7

6.7 Income stream annual drawdowns factors

COVID-19  - temporarily reducing superannuation minimum payment amounts

Retirees whose savings are affected by financial market volatility can take advantage of a temporary reduction in minimum superannuation drawdown requirements.

Reduced drawdowns on retirement income streams

The reduction applies for the 2019-20,2020-21 and 2021-22 income years

Age

Default minimum drawdown rates (%) from 2013-14 to 2018-19

Reduced rates by 50% for the 2019-20,  2020-21 and 2021-22 income years (%)

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 more

14

7

Example:

Mike is a 66-year-old retiree with a superannuation account-based pension

The value of Mike's account-based pension at 1 July 2019 was $200,000.Under the minimum drawdown requirements at that time, Mike was required by legislation to draw down 5 % of his account balance over the course of the 2019-20 and 2020-21income years.

This means Mike would have to draw down $10,000 by 30 June 2020 to comply with the minimum drawdown requirements.

Following the temporary reduction in minimum drawdown requirements, Mike would only be required to draw down 2.5%of his account balance, that is, $5,000 by 30 June 2020. If Mike has already withdrawn over $5,000 for 2019-20, he is not able to put the amount above $5,000 back into his superannuation account.

On 1 July 2020, the value of Mike's account-based pension is $180,000 (after drawdowns and investment losses). During the 2020-21 financial year, Mike is required to draw down 2.5% of his account balance, which is $4,500 rather than $9,000. As a result of this change to minimum drawdown requirements, Mike is able to preserve his capital while still drawing an income from his superannuation.

Source: Treasury - fact sheet providing support for retirees (https://treasury.gov.au/coronavirus/households/retirees)

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Monday, July 12, 2021