Superannuation Changes To Affect Pensioners (And What You May Still Need To Take Into Account From Last Year’s Budget)

The Federal Budget was released last Tuesday, announcing key changes to taxation and business. For superannuation, the minimum pension drawdown amount was in the spotlight.

The reduction in the minimum pension drawdown amount for superannuation pension recipients has been extended for another year by the Federal Government, as announced in the Budget for 2022-23.

The minimum pension amount will be only 50% of the general amount (the balance from which the pension is drawn). For example, a 65-year old would usually need to draw down 5% of their opening balance as a pension payment throughout the year.

For the 2022-23 financial year, the minimum amount will be reduced 50% (dropping this to 2.5%). This measure is set to cost the Federal Government around $19.2 million dollars for the 2022-23 years, but you need to be alert and conscientious about it.

Why Is That?

Whilst it is a great outcome to keep as much of your money in your super as is possible (if it’s not required for you to live on), you do need to be conscious that at some point, the remaining balance will be passed onto the next generation, potentially as a part of their inheritance.

When this money does change hands and is given to the next generation if the superannuation balance includes a taxable component, then your children may be subject to as much as 17% tax on the capital value of that balance.

Different tax treatments can apply depending on whether your super is being paid as a lump sum, income stream or mixture of both, and if your beneficiary or beneficiaries are classified as ‘tax dependants’.

A tax dependant includes:

• a current spouse, including defactos
• any children of the deceased who are under the age of 18
• any other financial dependents.

If your beneficiaries were not financially dependent of you, such as a spouse or child under 18 years of age, then they will have to pay tax on the inheritance that you have left for them in your superannuation fund.

However, if you take that money out of your super and it passes to your children as a part of your estate instead, there will be no death duties payable (in this instance, ‘death duties’ refers to inheritance tax that may be payable, which has not been an issue since 1981).

The primary reason for the reduction in the minimum pension payment amount is to protect pensioners from having to sell their assets during a volatile period. However, this is a double-edged sword that needs to be carefully considered and weighed against your circumstances.

You May Need To Start A Discussion 

Superannuation can be a tricky area to navigate, especially when you’re trying to do it by yourself.

If you’re approaching retirement, you may have questions about how to prepare for your pension years. These may include

1. General retirement adequacy – how much money you’ll actually need to retire on
2. How to manage your finances in retirement
3. Old age issues that could crop up
4. Using your home to fund retirement and insurance (and embracing the grey nomad lifestyle)
5. Recent changes to superannuation measures, including the extended timeframe of the minimum pension drawdown,

Consulting with a professional is the best way to ensure that your pension is currently operating at its most effective level, and they can assist you with understanding what you may need to do to get your affairs in preparation for the future.