Minimum Pension Payment Reduction Continues

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Minimum Pension Payment Reduction Continues

Looking at the Budget in relation to SMSF's, for self-funded retirees there is a continuation of the 50% reduction in minimum pension payments for another year (i.e. 2022/23).

Is this a good or bad thing? Like most things, there is no simple answer.  In order for a pension to attract tax benefits (i.e, the income on the assets supporting the pension is tax free), the pension must meet certain criteria. One of these is that a minimum amount of pension must be taken out each year. That minimum is calculated by applying an age related percentage to the opening balance at the start of the year. The idea behind a minimum pension percentage is that the pensioner cannot just accumulate money tax free. A portion must be used to pay a genuine pension. When Covid hit in 2020, the Government reduced the minimum to 50% because it thought that pensioners would be stuck at home and therefore not need the same amount of income. So in short, this reduced minimum percentage is a good thing for those wealthy enough not to need the income but for those drawing a reasonable pension because they must use it to live on, it is of no effect.

After the reduction, the minimum percentage starts at 2% for someone under 65 to 7% for someone over 95.  However,  if a higher amount is required, then the excess can be taken as a partial commutation which would release some of the transfer balance cap for later usage.  

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