Should we access less super after retirement?

Print This Post A A A

The government is discussing changes to the minimum amount retirees are legally required to take out of their superannuation after commencing an account based pension. This is currently between 4% and 14%, depending on the retiree’s age.

The Minister for Finance, Senator Cormann, has released a discussion paper on retirement incomes.

The suggestion to lower the annual minimum drawdown has arisen as a result of increasing life expectancy and the turbulence in financial markets during the GFC. Senator Cormann says that “the turbulence in financial markets over the past 5 years has placed the capital value of account based pensions under significant pressure, which the current minimum annual payment requirement has increased.”

Switzer Super Report Director, Paul Rickard, explains the current system.

“At 60, if you’ve got 100,000 in your pension, you’ve got to take out a minimum of 4% which is $4,000 a year. At 65 that goes up to 5%, at 75% – its 6%, at 80 – it’s 7%, and by the time you reach 95 – it’s 14%.”

Pensioners who access their super after age 60 don’t pay any tax on those benefits. Rickard says the government’s rationale behind the current system is to ensure that retirees use up their super monies so that they don’t have vast sums sitting in this concessionally taxed environment, and of course, to facilitate the provision of a steady level of income over time.

The Financial Services Council has said that current retirement income policies should be changed to protect Australian’s from owning the longevity risks associated with account based pensions. The self-managed superannuation fund industry is also lobbying for change to the mandatory withdrawal rate.

Others have argued that lowering the withdrawal rate would just serve the wealthy who would continue to benefit from the tax exemption over their large sum of super.

The Murray Financial Services Inquiry interim report, released in July, suggested that annuities or deferred annuities could be a compulsory solution to address the longevity risks associated with the current system, as they could help ensure that retirement funds last the retiree long enough, and therefore reduce the demand for the Age Pension.