Reduced pension minimum drawdown rates to be extended

As part of the 2022/23 Federal Budget, the Government has announced their intention to extend the reduced pension minimum drawdown rates. 

In response to COVID-19, the Federal Government temporarily reduced the minimum pension payment requirements for allocated pensions by 50% for the 2019/20, 2020/21, and 2021/22 financial years.  This measure was designed to reduce the need to sell investment assets to fund minimum drawdown requirements, providing Australians with flexibility during uncertain times

This temporary reduction was expected to end on 30 June 2022. However the Government has announced as part of their 2022/23 Federal Budget their intention to extend this reduction to 30 June 2023.

Drawdown rates

The minimum amount a member needs to withdraw from their allocated pension account is determined by both their age and balance as at 1 July each financial year. To help members understand what this announcement means for them, the below table highlights both the standard and temporary drawdown rates.

Age

Standard drawdown rate

Temporary drawdown rates

Under 65

4%

2%

65 to 74

5%

2.5%

75 to 79

6%

3%

80 to 84

7%

3.5%

85 to 89

9%

4.5%

90 to 94

11%

5.5%

95 and over

14%

7%

Example

Charlie is 67 years old, and as at 1 July 2022 has an allocated pension with a balance of $750,000. Under the standard drawdown rate, Charlie would need to drawdown at least 5% of his balance, which is $37,500, over the course of the financial year.

However, if the temporary drawdown rates are extended, he would only need to drawdown on 2.5% of his balance, which is $18,750, over the course of the financial year.

Next steps

Although announced as part of the 2022/23 Federal Budget it’s important to note that it has not yet been passed into law. If this extension is passed into law, we will contact our Allocated Pension Division members to confirm the extension and provide further information on what it means for their accounts.

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