Will we see the Government providing pension drawdown relief?

13 Mar 2020
Lyn Formica

Lyn Formica

Head of SMSF Technical & Education Services

During the 2008/09 global financial crisis, the Government responded to pensioner concerns by halving the minimum pension amounts. Whilst it is too early to tell whether the Government will respond in a similar way to this latest economic crisis, is there anything pensioners can do now to preserve their superannuation capital?

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All those drawing pensions must be paid a minimum amount from their superannuation fund each financial year. Where the pension concerned is an account-based pension, transition to retirement income stream or a market linked pension, this minimum payment is generally linked to the value of their pension account on 1 July of each year.

For those in receipt a pension on 1 July 2019, their minimum amount for the 2019/20 year was calculated based on fund asset values as at 1 July 2019 when equity values were higher. Since pension payments must be made in cash (rather than by transferring assets out of the fund to the member), in some cases meeting minimum drawdown requirements before 30 June 2020 may mean having to sell investments and realise losses in a depressed market.

In our last global financial crisis, the Government provided relief to pensioners by halving the minimum required draw down amount for a number of years. It is not yet known whether the Government will respond in a similar manner this time around.

For those pensioners who wish to limit their drawn down from superannuation to only the required minimum, it may be appropriate to hold off on drawing any further payments until closer to the end of the financial year. 

By holding off on taking payments, pensioners may be able to take advantage of any reduction in draw down amounts.

The major downside of doing so is that if no relief is provided and markets continue to fall, paying the minimum pension amount will potentially require the sale of even more assets within the superannuation fund. The same assets can be re-purchased outside superannuation when the member receives their cash pension payment. But it does mean that the assets will be permanently outside superannuation and so will any future recovery in their value.

Of course, if no changes are made, the full minimum amount will still need to be paid by 30 June 2020.