IF you draw a pension from your superannuation account, there has been a change that may be important to you.
Each year, someone with a super pension must withdraw a minimum percentage from their super account balance as it is as the beginning of the financial year. The reason for this is that superannuation exists to pay an income in retirement. It is not a savings account. You need to draw on it.
Withdrawal rates range from 4 per cent a year if you are younger than 65 to 14 per cent per year if you are over 95.
The significant losses in financial markets as a result of the COVID-19 crisis are having a negative effect on super account balances.
So if you had a balance of $100,000 at the start of the year and a minimum withdrawal rate of, say, 6 per cent, you were expected to take out $6,000. But if in the meantime your balance has gone down to say $80,000, a $6,000 withdrawal is more like 7.5 per cent.
For this reason, the Government has halved the minimum annual withdrawal rate for superannuation pensions. That’s for 2019-2020 and 2020-2021.
It helps to preserve your super balance until such times as markets recover.
However, this is not compulsory. These are minimum withdrawal rates. You can take out as much as you want.
Some super funds are automatically halving what they pay in pensions.
In many cases, people have instructed their super fund to pay them at the minimum withdrawal rate when they started their super pension.
Now that minimum withdrawal rates have been halved, super funds are cutting monthly pension payments in half. That has been a rude shock for some.
The important thing to remember is that all you need to do is instruct your fund to keep paying you at the old rate if you want to keep your pension payment at the old amount.
You can even instruct your super fund to pay you more, but the more you take out, the faster your balance will go down.