Date posted: 30/03/2022

Federal Budget 2022-23: Minimum super pension drawdowns halved for another year

Historically low interest rates force government’s hand to extend reduction for another year.

In Brief

  • Retirement Income Review want retirees to have very few assets to their name when they die
  • CA ANZ research indicates that retirees do indeed run down their super assets
  • Some associations have argued that the minimum pension reduction should be made permanent

Australia's government will allow the minimum drawdown on superannuation pensions to be halved for another financial year until 30 June 2023, continuing a change that has been applied since 1 July 2019. The measure was leaked ahead of the budget announcement.

Reducing minimum drawdown rates has typically been permitted because of financial market or general economic downturns.

Continuation of the measure comes amid historically low interest rates, which are expected to remain low for some time, especially on deposits. Super investors who receive most of their income from Australian equity dividends and other similar income sources have not been impacted to the same extent, if at all.

It would be a surprise, therefore, if the government made this temporary minimum pension drawdown reduction permanent.

In 2020, the Retirement Income Review (RIR) created the impression that most retirees do not spend their wealth before they die. The review did not say how current retirees held these assets. Was it in the family home, other assets or held in super?

Our analysis of APRA superannuation data, which we put into several submissions to government, showed that older Australians do indeed run down their super monies:

Total Member Accounts (‘000) Total Pension Accounts (‘000)
Age June 2015 June 2020 June 2015 June 2020
60 to 64 1,690 1,668 284 266
65 to 69 1,002 1,149 387 412
70 to 74 486 720 292 388
75 to 84 323 548 282 409
85+ 80 113 76 109

Source: APRA’s June 2020 Annual Superannuation Bulletin issued in January 2021, from funds with more than four members (Available at: https://tinyurl.com/y4r6mcnc [Accessed 6 August 2021].)

The Retirement Income Review also published data that as people age in retirement their spending levels drop quite dramatically — typically, once they’re about 80 years old.

The APRA data above does not show what people do with their superannuation money. They may take it out as income and then not spend it but hold onto it.

After the recent leak, the Association of Independent Retirees (AIR) and National Seniors Australia argued that the government’s recent announcement should be made permanent especially for older retirees.

The AIR told the government in its pre-budget submission, “change is needed to the minimum drawdown percentage for retirees in later years due to the rapidly increasing longevity of older retirees who need more funds for a longer retirement and increasing age care costs.”

The minimum super pension minimum drawdown rates were determined about 15 years ago, so it probably is about time they were reviewed.

However, based on average rates of return, and allowing for average life expectancies with assumptions for improvements to those expectancies overtime, the actuarial numbers indicate that the minimum drawdown rates do achieve what the government actually wants – that is, retirees reducing their super pension holdings significantly as they age.

It would be a surprise, therefore, if the government made this temporary minimum pension drawdown reduction permanent.

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