Rules for Account Based Pensions are about to Change

Thursday, May 06, 2021

There are many benefits to Account Based Pensions for retirees, including tax and estate planning benefits. There are minimum annual income rules and these were reduced during COVID to alleviate impact on investors capital. From July 1st 2021 this is about to change, read on for retirement pension financial advice.....

Please note:  since writing this article the Government made an announcement on June 6th that they will extend the reduced pension option until June 2022Other aspects of this article are worthwhile education so we have left it here in our news section. 

Many self-funded retirees utilise an Account Based Pension for delivering a regular income into their household. Some of the benefits of Account Based Pensions include:

  1. They are a more tax effective way of investing your retirement funds as you won't pay tax on pension payments once you turn 60yrs. (If you're age 55 to 59, the taxable part of your pension is taxed at your marginal tax rate, minus a 15% tax offset.)
     
  2. The earnings on your investments are also tax-free and you have choice on how your funds are invested with dividends paid direct back to your investment.
     
  3. You can withdraw all or some of your money at any time.
     
  4. There are Estate Planning advantages in that the money can stay in super or pension and transfer directly to your spouse should you pass away.  
     
  5. And you can nominate the income amount you wish to receive and the frequency - whether it be fortnightly, monthly payments or another preferred time frame. 

However, the Government has set minimum and maximum pensions to be paid each financial year. These are percentage amounts of the total value of your investment and change according to your age.

At the beginning of the COVID pandemic the Australian government allowed these minimums to be halved. For example someone in the 65-74yrs age bracket could reduce their minimum pension drawdown from 5% to 2.5%.

This option meant retirees could protect their savings while the markets were in massive upheaval and rapid downturn in the initial phases of COVID. Many retirees took this option in order to give their retirement nest egg a chance to be maintained while the markets were responding to the global pandemic.

Retirement Age

Min balance 2020/2021

From 1 July 2022 onwards (updated 6/6/21)

Under 65

2%

4%

65 to 74

2.5%

5%

75 to 79

3%

6%

80 to 84

3.5%

7%

85 to 89

4.5%

9%

90 to 94

5.5%

11%

95+

7%

 

 

From 1st July 2021, the minimum amounts will return to the pre-COVID rates.

Thankfully, many businesses have recovered and even thrived over the past twelve months and fund managers have found their way within the markets focussing on areas where investments are best placed. As a result many investment portfolios have recovered their value.

The strategy of retirees reducing their income drawdowns during the past twelve months has given many the chance to maintain and even recover their wealth from the low points of last year. This at a time when many retirees were restricted in their outward activities and likely with reduced spending anyway.

The subsequent market recovery has also provided some investors the chance to rebalance investments in their portfolio. Also the chance for some to move an appropriate amount of recovered wealth into Cash so as to fund their future income payments. The now increasing minimum pensions will require this cash and in addition life is freeing up likely leading to more spending on outward activity. 

Active investment strategy throughout this time has been vital for retirees to plan their long term security.  

As always, negotiating market, superannuation and allocated pension changes is best done in consultation with your Financial Adviser. For expert retirement pension financial advice and services across the Sunshine Coast and Wide Bay regions, contact us at Maher Digby financial planners in Nambour. The Estate Planning Sunshine Coast leaders.  

 For clarification or more Information regarding financial planning for seniors, contact Mark Digby at Maher Digby Securities Pty  Ltd - Financial Advisers – AFSL No. 230559 – Ph: 075441 1266.  This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such. Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial adviser in Sunshine Coast

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