Cut to super drawdown rates – a big win for retirees

It’s good news for superannuated retirees but what are drawdown rates and how do they work?

The big issue on the minds of our members is what’s happening to their financial nest egg when the share market is falling.

As one member said, the collapse of the share market “…has severely impacted our superannuation. We worry about our future ability to support ourselves.”

One of the key issues raised is the impact of minimum superannuation drawdown rules on retirement savings.

As this member explained, “I am a self-funded retiree, am concerned about my super and would like the option of reducing the amount which I am obligated to withdraw each year, as occurred during the GFC.”

Another said, “I believe self-funded retirees urgently need a short-term concessional lowering of this mandatory minimum withdrawal level to help prevent them being forced onto social security payments prematurely in the future.”

A big win for seniors in uncertain times

We have acted on this, working individually and with the SMSF Association to advocate in the media, and lobby both the Treasurer and the Assistant Treasurer calling for action.

They have listened and acted.

The government responded in the second stimulus package by halving the minimum superannuation drawdown required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities in the 2019–20 and the 2020–21 financial years.

What are minimum drawdown rates?

Once you start a pension or annuity a minimum amount is required to be paid to you each year. There is no maximum amount other than the balance of your super account, unless it is a transition to retirement pension which is not in the retirement phase, in which case the maximum amount is 10% of the account balance.

Not many people realise that minimum drawdown rates were introduced to ensure superannuation is used for its intended purpose of supporting consumption during retirement. As the table above shows, minimum drawdown rates increase with age to encourage you to use your superannuation not save it.

For the most part this has been okay.

Recent years have seen a sometime spectacular growth in superannuation accounts that include sharemarket investments. So, withdrawals from super were coming from a growing super ‘pie’ and not so much of a problem.

But when the market falls dramatically, as it has done with the coronavirus, the superannuation pie shrinks dramatically. The impact of this can be severe and a worry to superannuants, as we have read earlier in this article.

This is because the previous minimum drawdown rates meant money was being withdrawn from superannuants funds rapidly, in part because the minimum payment amount is based on the account balance at the beginning of the financial year before asset prices had fallen significantly.

What’s more, super accounts might not return to pre-crisis levels for an extended period, forcing you to continue to sell assets to meet the requirements.

Similar concerns were raised during the Global Financial Crisis in 2008 and the Government responded quickly to halve the minimum drawdown requirements for the financial year.

Keeping you informed

The change in the drawdown rate is a big win for you and another reason to support our advocacy activities.

As a member and supporter, we ask that you circulate our material far and wide. At this time, it’s good to let the wider community know why it’s so important to join National Seniors so we can continue to represent you strongly at a national level.

Our website is being constantly updated with regular updates on all manner of issues related to COVID-19.

Professor John McCallum is based in Canberra and is getting the latest information from the nation’s leaders so we can provide you with what you need at this time on the health and aged care front.

Learn more about National Seniors Australia

If you're new to our website, you might not know much about us.

National Seniors is not only the country's largest not for profit advocacy organisation for seniors, fighting for the rights of all older Australians, but we're a leading membership group as well.

From exclusive member buying services to everyday discounts; from competitions to our popular quarterly magazine, it pays to be a National Seniors member.

As a National Seniors Australia member, you'll also be eligible to receive discounts on National Seniors Insurance products and Travel services.

Profits go back into our advocacy, research and education programs to help older Australians live their best life.

Together, we can make a difference.

Sign up to Connect

Have you subscribed to our weekly Connect eNewsletter? Stay up to date on issues important to you and all older Australians