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Drawdown rates to return to pre-COVID levels

pension drawdown rates

https://smsmagazine.com.au/news/2020/03/23/govt-introduces-super-pension-relief-measures/

Minimum pension drawdown rates are likely to return to pre-COVID-19 levels and remain static despite changes in life expectancy factors and an expected review by the government actuary, the SMSF Association has predicted.

SMSF Association deputy chief executive and policy and education director Peter Burgess said a number of factors would come into play when setting the rates from the middle of this year, including the end of COVID-19 measures, a scheduled review of the rate by the Australian government actuary and a finding in the Retirement Income Review (RIR) that retirees were not drawing down on their retirement savings.

“What we did see at the start of the pandemic last year following a downturn in investment markets was the government moved very quickly to reduce minimum drawdown rates for account-based pensions and market-linked income streams by half for the 2019/20 and 2020/21 income years,” Burgess said at the SMSF Association National Conference 2021 yesterday.

“That is set to run out on 1 July and from that date these minimum rates are expected to return to normal levels, but we also know the Australian government actuary may be reviewing these drawdown rates this year.”

He said the review of rates was due to take place this year following a 2016 examination of retirement income streams by Treasury that recommended the rates be examined every five years in line with changes in life expectancy factors.

“It has been five years since that report so we think the government actuary may be doing that review of these pension drawdown rates and given that life expectancy factors have increased – people are living longer – you would think that would put downward pressure on these drawdown rates,” he noted.

“Of course, we also had the RIR and their finding that retirees are not drawing down enough in retirement, so the government may be tempted to increase the minimum drawdown rates off the back of that.

“All things considered, we think we will see a return to standard rates from 1 July this year and that will be the case unless the government intervenes.”

He added it was unlikely there would be a repeat of events following the global financial crisis in 2008 when the drawdown rates were slowly moved back to their standard level over a period of five years.

“That could be significant for clients in the pension phase because they are going to need to make sure they have the cash flow to meet those minimum payment obligations, which may mean making some changes to their investments and their investment strategy,” he said.

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