Further to our article posted in April 2020, the Government has announced, as part of the Government’s Covid relief plan, that the 50% reduction in the superannuation minimum drawdown requirements has been extended for a further year to the 30th of June 2022.

It is expected that the extension will continue to apply to:

• Account-based pensions
• Transition to retirement pensions (TRIS)
• Market-linked pensions (also commonly called term-allocated pensions).

As with the current rules, it is also not expected that the reduction will apply to lifetime or life expectancy pensions.

The following table outlines the reduced minimum pension rates for account-based pensions:

Age / Minimum percentage factor for each age group

• Under 65 / 2%
• 65-74 / 2.5%
• 75-79 / 3%
• 80-84 / 3.5%
• 85-89 / 4.5%
• 90-94 / 5.5%
• 95 or more / 7%

Please note that when calculating the new minimum pension withdrawal amount, the 50% reduction applies to the percentage factor not the actual amount to be withdrawn.

For Example, (assuming we are in the new financial year), Greg is 67 years old and at the 1st of July 2021, his account-based pension balance was $480,000. Greg’s minimum annual payment would’ve been calculated at 5% (the normal percentage applicable to his age) resulting in a minimum of $480,000 x 5% = $24,000. Using the newly announced Covid reduction rate, Greg’s annual minimum pension payment is now: $480,000 x 2.5% = $12,000.

Another example using the pro-rata method is where Tom commences an account-based pension on the 1st January 2022 at age 66. His pension account balance on the commencement day is $250,000. Under the reduced rate, his minimum annual payment amount would be: $250,000 x 2.5% = $6,250. However, as the pension commenced on the 1st January 2020, the required minimum amount is calculated proportionately from the commencement day to the end of the financial year:

[$6250 (minimum annual payment amount) × 182 (days remaining)] ÷ 365 = $3,16.45

In both situations, Tom and Greg cannot refund any drawdown amounts that are over the new reduced minimums. If they did, these would have to be considered contributions and be subject to any other rules or limits such as contribution caps.