Since 1 July 2023, the temporarily reduced superannuation minimum drawdown requirements for account-based pensions have doubled to pre-pandemic withdrawal rates. The 50% reduction was introduced by the government as an interim measure in response to the impact the pandemic had on member superannuation balances.
The minimum drawdown requirements apply to:
- Account-Based Pensions
- Transition to Retirement Pensions (a 10% maximum also applies)
- Term-Allocated Pensions
What is a pension payment?
Pension payments must be paid out of the superannuation fund in cash only.
Whilst members with a Transition to Retirement Income Stream (TRIS) or Account-Based Pension can take a lump sum commutation of their pension as an in-specie payment if the tax components include a component of unpreserved money – minimum pension payments required for a financial year cannot be satisfied by in-specie withdrawals.
See below the minimum percentage of account balances required to be withdrawn by age:
|Age||Under 65||65-74||75-79||80-84||85-89||90-94||95 or more|
|2023-24 Income Year||4.0%||5.0%||6.0%||7.0%||9.0%||11.0%||14.0%|
Potential Liquidity Challenges
The majority of superannuation funds have increased in value post pandemic off the back of strong growth in asset prices – such as equities and direct property.
Liquidity challenges from a withdrawal perspective can often exist for those members, whose investment strategies are skewed towards asset classes such as property or unlisted shares or units.
As minimum pension payments are based on a percentage factor and the member’s pension balance, depending on the income stream generated by assets within the superfund, this may cause liquidity issues for members particularly when members have capital invested in illiquid assets or assets that have irregular income patterns.
Put simply, this may put members in a position where they are required to sell off assets if the superannuation fund does not have enough cash to support the minimum pension withdrawal for the financial year.
Be prepared – where do I start?
The minimum drawdown rates took effect from 1 July 2023. For those members of a superannuation fund that have capital tied up in lumpy assets such as property or unlisted investments – we recommend that you seek advice from your Engagement Partner to assist with determining the potential tax outcomes associated with the possible sale of assets (if required) to assist in meeting the increased minimum drawdown for the 2024 financial year.
Should you have any questions about how these changes will impact you please reach out to your Engagement Partner. As always, we are here to help and explain what the changes mean for our clients.