Minimum drawdown may be reduced
12 August 2014
One of the management issues in super is the requirement to withdraw a minimum amount in either the retirement phase after 65 (5%) or the transition to retirement phase between 55 and 65 (4%). The AFR is today saying that these minimum amounts may be reduced. It could give more options to those trying to manage the capital amount and not run the savings down. The AFR describes it as an issue for the wealthy, which is technically true, but it also is a strategy issue, in relation to the balance between getting income and preserving the total amount:
"Wealthy retirees may not have to withdraw as much money from their private pension under an option being considered by the government, which experts say would be an easy way for the rich to preserve tax-free superannuation for their heirs.
The government is considering lowering the annual minimum drawdown from account-based pensions to give self-funded retirees confidence their funds will not run out during economic downturns due to forced withdrawals.
The Financial Services Council and the self-managed superannuation fund industry are lobbying to change the mandatory withdrawal rate, which ranges from 4 to 14 per cent.
But tax and superannuation experts said that lowering the payment, without restrictions, would simply benefit the wealthy, who do not need to draw on their nest egg, and can continue to take advantage of the tax exemption on super earnings."
Giving more strategic options does not seem especially problematic. Especially when even apparently large amounts in super do not look so sustainable if one factors in the likelihood that many retirees will live well into their 80s -- and perhaps longer. Running down the amounts with income payouts earlier in that period can quickly lead to the total amount falling:
The issues of social equity seem a little illusory. Having the rich pay themselves a minimum amount of money is, well, having them pay themselves a minimum amount of money. They are still rich. Still, there will be considerable debate about this and it is likely some changes will be made:
"Rather than cut the minimum amount, the government could consider changing the timing of withdrawals so it would take into account the balance before the downturn hit.“Let’s say the account balance was $100,000 and required you to take out 10 per cent each year.” Ms Nance said. “You’ve had a market shock and the account balance is now only $90,000. You’re still required to take 10 per cent, but its 10 per cent of $90,000, and not $100,000, because it takes account your current balance rather than end of July balance.”
Deloitte financial services partner Paul Swinhoe also said there was nothing to stop wealthy people banking up funds that they could then bequeath to their spouse or kids.
The government needed to be careful that in “opening the doors it’s not so far that you can whack all your money in there”. “It would be a real shame if tax benefits go to people who don’t deserve them,” Mr Swinhoe said."