Nobody saw the coronavirus coming. Many are panicking, not for fear of getting sick, but because the value of their retirement savings is plummeting.
The federal government’s coronavirus stimulus package is without doubt generous, but they’ve forgotten about one important segment of our community – self-funded retirees.
Once a super fund member moves into pension mode, they are required by law to draw a minimum amount out of the pension account each year. This is calculated as a percentage of a member’s pension balance based on their age. To comply, people can be forced to dispose of investments if their fund holds an insufficient cash balance to satisfy these minimum drawdown requirements.
You may recall during the global financial crisis (GFC) between 2007 and 2009 the government made the welcome decision to decrease the minimum pension withdrawal requirement for Australians in pension mode. This measure of relief was extended over several financial years. Minimum pension payment amounts were halved for certain pensions and annuities for the 2009, 2010 and 2011 financial years. The reduction was subsequently adjusted to 25 per cent for 2011/12 and 2012/13.
Many retirees who don’t need to live off their pension savings wait until the end of the financial year to make the drawdown from their fund. This means a significant number of Australian pensioners may be required to liquidate investments to satisfy the pension minimum, in many cases doing so when the value of shares or investments have plummeted as a result of the market effect of COVID-19. How is this fair?
I’m delighted to see the government making stimulus handouts, but let’s extend the focus to the superannuation sector – and I’m talking more than a one-off handout of $750 if you’re obtaining Centrelink benefits.
I’d like to see Canberra repeat the precedent set during the GFC and decrease minimum pension requirements. Give pensioners the opportunity to sit on their investments until market conditions (eventually) recover.
Olivia Long is managing director – SMSF at Prime Financial Group and ExpertSuper.