Pam Roberts
News

Pension drawdown relief for retirees

By Pam Roberts

The Government has announced that they will suspend the minimum drawdown requirement for account-based pensions for the second half of 2008-09. This will result in a 50 per cent reduction in the minimum payment amount for 2008-09.

The pension drawdown relief provides an opportunity for financial advisers to proactively assist pension clients that are concerned that meeting the minimum drawdown amount in 2008-09 will mean having to sell investment assets and realise losses in a depressed market.

The changes will be via regulation and are being prepared by Treasury without delay.

The ‘new minimums' will apply to existing pensioners (including those who have commenced a pension during the financial year) and to new pensioners who commence a pension prior to 30 June 2009.

The types of pensions covered by this relief are:

  • allocated (account-based) pensions;
  • transition to retirement allocated pensions; and
  • term allocated pensions (TAPs).

Basically the Government will replace the current drawdown tables for allocated pensions (reducing the minimum by 50%) and TAPs (doubling the payment factors). The Government will review the policy in May to see whether they should extend it for another year (i.e. 2009-10).

How will IOOF apply the changes?

IOOF will be able to offer the relief to all allocated pensioners, transition to retirement allocated pensioners and term allocated pensioners in our products as follows:

  • We will be unable to suspend/amend the February pension payments, but we can accept written requests to suspend/adjust pension payments for March and beyond.
  • Most pensioners who intend to take up the offer will be requesting to have further payments suspended. It is likely that only those on annual pension payments (or some of those who commenced their pension part way through the year) will have payments adjusted rather than waived entirely.
  • A client will need to make a specific request to suspend/reduce payments if they wish to take advantage of the relief. Even though the regulations are likely to change the minimums to a temporarily lower level, the ‘old minimums’ in the current PDS continue to apply to our existing clients. The new minimums will not apply automatically to an existing client receiving the minimum. Requests to suspend/reduce payments coming in now can be accepted but must be in writing and signed by the client.
  • IOOF is intending to write to all existing pensioners in March with a letter and return form. The letter will advise them of the opportunity to have the new minimum apply to them. For TAPs we will offer a straight 50% of their current annual amount.
  • Pensioners commencing their pension now can simply write on their application form that they want the new 50% minimum to apply.
  • Pensioners changing to the new minimum will get a new Centrelink schedule which will set out the new annualised rate of income. However it is not yet clear whether Centrelink will continue to apply the 'old minimum' pensions as the base threshold for determining income under the Income Test.
  • Finally, the changes will also impact commutations where the client has not taken their minimum pension during the year. Until the new regulations are law the ‘old minimum' table will apply. When the regulations go through the new minimum will immediately apply.

Once the regulation has been released by Treasury, IOOF will provide further guidance for advisers.