Drawing Income from your Retirement Pension
Tuesday, May 30, 2023
Once retired most people transfer their superannuation to an Account Based Pension and start drawing an income to fund their retirement. Because of market turmoil during COVID, the Australian government allowed pensioners to reduce the minimum annual income they withdrew from their pension by 50%. As of 1st July 2023 however, the minimum pensions are returning to their pre-COVID limits.
Once retired most people transfer their superannuation to an Account Based Pension and start drawing an income to fund their retirement. As a retiree you would discuss with your financial adviser how much income you will need to cover your cost of living and other life expenses over the ensuing twelve months. Any unexpected or larger expenses can always be funded by a one-off redemption of funds closer the time of your needs as long as your portfolio has been invested in a way that offers you quick and easy access to some cash.
Another consideration for the monthly drawing down of your pension income from your Account based Pension will be how much Age Pension you qualify for from Centrelink, and market influences.
Because of market turmoil during COVID, the Australian government allowed pensioners to reduce the minimum annual income they withdrew from their pension by 50%. This strategy was to assist retired Australians to maintain their investment monies as much as possible while markets had time to recover in the post COVID environment. So, for example, if you were under 65 years of age then the minimum drawdown has been 2% over the past couple of years. In this case if you had an investment of $200,000 then the minimum annual pension you could draw has been $4,000 (or $334/month).
Many investors decided to take advantage of this option to reduce their annual income and wait out the tide of COVID impacts on their investments. As of 1st July 2023 however, the minimum pensions are returning to their pre-COVID limits. So, repeating the above example, the minimum pension would now increase to $8,000 ($667/month).
Minimum Pension Payments
As you progress through the retirement cycle there will be adjustments to the minimum pension you must take on an annual basis. Retirement pensions are free of tax and these minimum draw-downs are to prevent investors hoarding funds within a pension environment. If you do not take these minimums then your Pension will no longer be tax-free.
|
Age |
Minimum pension payment 2023-24 |
Minimum pension payment 2019-20 to 2022-2023 |
|
Under 65 |
4% |
2% |
|
65-74 |
5% |
2.5% |
|
75-79 |
6% |
3.0% |
|
80-84 |
7% |
3.5% |
|
85-89 |
9% |
4.5% |
|
90-94 |
11% |
5.5% |
|
95 or more |
14% |
7% |
Will these changes reduce my Centrelink Age Pension?
The short answer is most likely no. Centrelink use either an income or assets test. The income test is a deemed rate based on your expected pension income and this will not have changed unless your pension portfolio valuation has increased. The assets test is based on the total value of your superannuation valuation plus your possessions and other investments, so if you are caused to draw more money from your superannuation then your valuation of holdings may ultimately go down.
What do I need to do?
Generally, investment fund administrators will make the required adjustments to client’s portfolios as of July 1st. Therefore, these changes should occur automatically and as a result, if you did in fact choose to reduce your monthly minimum during the past couple of years, you will now receive an increased income.
If your circumstances have changed during the past couple of years of the COVID recovery period, then it could be wise to consult with your financial adviser to review your investment strategy and maximise your returns. Maher Digby specialise in retirement investments and can assist with planning and maximising your retirement income.
For more Information contact Mark Digby at Maher Digby Securities Pty Ltd - Financial Advisers – AFSL No. 230559. 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 specialising in retirement planning.