The federal government decision to reduce the minimum pension payments as a financial relief measure from the coronavirus will not affect term and lifetime annuities.
“That’s important. The government realises that account-based income streams are particularly affected at the moment. They want to give retirees the flexibility to draw down less from their account-based pensions when the market is down,” Challenger technical services manager Michael McLean noted during a technical webinar hosted by Accurium today.
“This doesn’t affect guaranteed income streams, so won’t affect those [types of annuities].”
McLean pointed out the change was not confined to account-based pensions and also applies to market-linked income streams, as well as transition-to-retirement income streams.
This measure will have an immediate effect on some SMSFs for the 2020 financial year, he noted.
“[For] SMSF clients it should be pretty easy for them. They can stop them from their own fund straight away if they’ve been paying say monthly payments and have already paid above their minimum this financial year,” he said.
“[However] they won’t be able to refund excess payments already paid out of their fund above the minimum back into super in this financial year.”
He emphasised while the changes to the minimum pension payment have just been made, the new drawdown percentages still apply to the balance of the relevant income stream as at 1 July 2019.
Further, the reduced minimum pension payments will be in place for next financial year as well and the percentages for the 2021 financial year will be based upon pension values as at 1 July 2020.
McLean suggested the measure could represent a good time for advisers to refresh their clients’ existing pensions, especially if trustees wanted to draw down even less money from their fund.
To this end, he suggested perhaps commuting the existing pension and restarting it now. That is because In all likelihood, with the negative effect COVID-19 has had on markets, the new pension would have a lower balance, resulting in smaller pension payments again based on the new minimums, he said.