Super withdrawal rates halved for another year

Article published 2 June 2021

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AS part of the response to the Coronavirus pandemic, the Government responded by reducing the superannuation minimum drawdown rates by 50 per cent for 2019/20 and 2020/21.

This was the right policy measure at the time.

People who draw a superannuation pension are required to make a minimum pension withdrawal of between 4 and 14 per cent of their super balance at the beginning of the financial year depending on age. This requirement has always been part of the superannuation system to compel fund members to use their super savings for their legislated purpose: to provide income in retirement.

When the COVID-19 pandemic struck back in February 2020, stock markets dived. The All Ordinaries lost close to a quarter of its value. It can be assumed that many super pension balances also incurred losses of that order. Dividends came under a cloud as well.

So, maintaining the mandatory pension withdrawal rates would have typically forced super funds to sell stock and sell stock at a loss.

Halving the mandatory requirement for 2019/20 and 2020/2021 was a good, compassionate measure.

The Government has now extended this measure to 2021/22.

This is generous because the All Ordinaries had fully recovered by the end of May 2021. Presumably, super pension balances have done the same thing, as have dividends.

In other words, extending the reduction in the minimum pension withdrawal rates isn’t really necessary, but we’ll take it anyway.

Also, the Government claims it “will continue to support retirees as part of [its] plan to secure Australia’s economic recovery from COVID-19”. Doesn’t the reduction in withdrawal rates have the opposite effect, though? It keeps money out of the economy, rather than inject money into it.

Anyway, we’ll take it.

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