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Aussie retirees feel drop in super pension payments

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If you are receiving a super income stream or annuity you may have noticed your pension has recently been reduced because of the change in minimum withdrawal amounts set by the federal government.

As part of the government's COVID-19 stimulus measures announced in March there were two changes for super, one was the early release scheme and the other was the halving of the minimum pension withdrawal amount for this financial year (2019-20) and the next (2020-21).

While the changes were announced in March, people might only now be receiving their quarterly or annual payments and noticing a reduction.

super minimum pension drawdowns changed

According to BT Financial Group head of financial literacy Bryan Ashenden, the reduction means that people don't have to take out as much money as they did previously. However, they can also stick with the previous amount if they choose.

"For example, a 65-year-old normally has to withdraw a minimum 5% of their super balance, but they can now withdraw just 2.5%," says Ashenden.

The reduction assists retirees preserve their superannuation pension or annuity balances that might have experienced significant losses in financial markets as a result of COVID-19.

Reducing minimum withdrawal levels is not new; it was also done after the global financial crisis so people wouldn't need to withdraw money when funds were down.

Ashenden suggests that if people have an adviser they should discuss what to do with their pension.

"In the absence of that, people should contact their super fund because all funds are approaching it differently," he says.

"Some funds might take the approach that they will leave your withdrawal amount as it is unless you inform them, but others might have automatically applied the revised minimum.

"If your instruction to the fund has been just pay me the minimum amount it's possible it could be automatically adjusted to the new minimum, but if you said pay me 5% they will still pay you 5%."

You can change your withdrawal amount at any time and can increase the withdrawal amount, says Ashenden.

Minimum pension and annuity withdrawal percentages

Age

Minimum % withdrawal
(in all cases)

Reduced rates by 50% 
for 2019-20 and 2020-21 (%)

Under 65 4% 2%
65-74 5% 2.5%
75-79 6% 3%
80-84 7% 3.5%
85-89 9% 4.5%
90-94 11% 5.5%
95 or more 14% 7%

If you have experienced a loss in your superannuation or annuity, you may like to check if you have become eligible for Centrelink benefits or an increase in Centrelink payments.

Story Wealth adviser and chief executive Anne Graham says following the market falls she has updated Centrelink with a number of client account balances that were lower than their previously recorded balance which resulted in an increase to clients' pension payments.

"Clients are trying to get new applications in quickly so they qualify for the next $750 stimulus payment," says Graham.

"We had one client who applied for pension just prior to the first $750 payment. His application is currently being assessed but my understanding is that if it's approved, he'll get backdated pension to the date of application and the $750.

"We have clients interested in Centrelink benefits who were previously eligible but didn't want to go through the process. They've changed their minds for all sorts of reasons."

According to Graham, in some cases the client's super balance might only fall by $20,000 to get them over the line for a Centrelink pension.

"That could be a low percentage depending on the value of their assets but clients are savvy and a lot were updating (with our assistance) Centrelink with new balances during March and April, during the worse falls," she says.

At the bottom of the market, balances were down anywhere from 5% to 25% for clients, depending on their investment options, says Graham.

Evalesco director and financial adviser Marshall Brentnall says most of his clients would have two to three years of cash within their super account to allow them to trade through a cycle like this.

"In our experience, those who are choosing to dial down the withdrawal amount are those who are at the wealthier end of the spectrum," says Brentnall.

"Those who have less in super can least afford to dial back on the payments because they're making ends meet or they're just a little bit ahead.

"They don't have scope to drop income from $90,000 to $70,000."

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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Julia Newbould is a financial writer and commentator with a background in journalism. She was previously editor of Financial Planning and Super Review magazines; managing editor at InvestorInfo and at Morningstar Australia. Julia co-authored The Joy of Money, a book on women and personal finance. She holds a Bachelor of Economics from the University of Sydney where she serves on the alumni council.
Comments
Gerard MARTIN
June 24, 2020 5.30pm

Hi,

I just would like to know,wich company do the business of dealing to centerlink for a pensioner,is it a financial planner?

Thank you

Money magazine
June 26, 2020 12.41pm

Hi Gerard,

You don't need to pay to see a financial planner. You can contact Centrelink directly by phoning 132 200.

- Money team

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