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Minimum pension drawdown relief extended to the 2021/22 financial year
The pension drawdown relief which applies for the 2019/20 and 2020/21 financial years will be extended for a further financial year to 2021/22. The extension of this relief was announced on 29 May 2021 in a joint media release of the Prime Minister, Treasurer and Senator Jane Hume, the Minister for Superannuation.
The extension means that for the 2021/22 financial year, the minimum drawdowns for account-based pensions will be reduced by half.
For taxpayers who are receiving an income stream from an account-based pension this means that the minimum drawdown rates for the 2021/22 financial year will be:
- If you are aged 64 or less – 2% rather than 4%
- If you are aged 65 or more and less than 75 – 2.5% rather than 5%
- If you are aged 75 or more and less than 80 - 3% rather than 6%
- If you are aged 80 or more and less than 85 – 3.5% rather than 7%
- If you are aged 85 or more and less than 90 - 4.5% rather than 9%
- If you are aged 90 or more and less than 95 – 5.5% rather than 11%; and
- If you are aged 95 or more - 7% rather than 14%.
For this purpose your age is determined as at 1 July 2021.
The percentage applies to the pension account balance as at 1 July 2021.
These percentages specify the minimum which must be paid from your pension account during the 2021/22 financial year. You can, if you so wish, specify a higher amount to be paid from your pension account.
Transition to retirement pensions and the extension of the minimum drawdown relief to the 2021/22 financial year
The announced relief also applies to transition to retirement pensions. Consequently for the 2021/22 financial year, the minimum payment from your transition to retirement pension will be 2% rather than 4%.
However, there is no change to the payment ceiling which applies to transition to retirement pension. The maximum payment which can be paid from a transition to retirement pension is 10% of the pension account balance as at 1 July 2021.
Market linked pensions (Term Allocated Pensions) and the extension of the minimum drawdown relief to the 2021/22 financial year
Market linked pensions (also known as Term Allocated Pensions) are a special type of account pension. Generally these pensions cannot be issued after 20 September 2007 (unless the market linked pension is issued in replacement of a previously issued market linked pension or certain other types of defined benefit pensions).
Unlike account-based pensions, market linked pensions are required to have a drawdown not less than a lower limit and not more than an upper. The lower and upper limits are calculated, respectively, as 90% and 110% of a calculated amount for the financial year. The calculated amount is the pension account balance (as at 1 July 2021) divided by a prescribed factor which is related to the remaining term of the pension.
For example, if the pension account balance was $400,000 and the remaining term of the pension was 10 years as at 1 July 2021 then the calculated amount is $48,077 ($400,000 divided by the prescribed factor of 8.32). The lower and upper limits would, respectively, be $43,270 and $52,880 (both rounded). Consequently, without the relief, the pension drawdown must be an amount within these two limits.
As the minimum drawdown relief also applies to market linked pensions, the lower limit for the 2021/22 financial year will be 45% of the calculated amount rather than 90%. In the above example, the lower drawdown limit will be $21,630 (ie half of 90% of $48,077).
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