Reduced pension minimum could disadvantage retirees
Retirees would be disadvantaged if they took more than the reduced minimum amount as a pension before the reduction in the minimum pension percentage became law on 24 March, 2020, according to the SMSF Association.
In an analysis, the SMSF Association’s technical manager, Mary Simmons said pension payments made up to 24 March, 2020, in excess of the new reduced minimum annual payment would be treated as pension payments in 2019/20 and could not be treated as lump sums.
The law change was a result of the COVID-19 pandemic.
“More importantly, the Australian Taxation Office have confirmed that this treatment also applies where a valid election was in place as far back as 1 July, 2019, requesting that the trustee treat any payment over the minimum pension amount required for the year as a lump sum,” Simmons said.
“In this situation, only payments made to a member, after 24 March, 2020, in excess of the reduced minimum annual pension drawdown, can be treated as a lump sum. The need to ensure that a valid election from a member is in place prior to the payment of any lump sum is still required.
“Unfortunately, what this means is that some retirees will be disadvantaged. Essentially, it’s just bad luck for any member who took more than the reduced minimum amount as a pension before the change became law on 24 March, 2020, despite having in place a valid election to treat any excess pension payments as lump sum commutations. These members can only treat payments made after 24 March 2020 as lump sum commutations.”
However, Simmons noted that members who chose to receive their pension in the later months of 2019/2020, provided they had a valid election in place prior to receiving the payment, would be able to take advantage of the retrospective nature of the reduction in the annual minimum pension drawdown requirements and can treat any excess pension payments as lump sum commutations.
Recommended for you
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
Responsible investment performance concerns have lessened as the market hits $1.6 trillion in AUM, according to RIAA’s annual report, but greenwashing fears among asset managers are on the rise.
