At the beginning of every financial year, the ‘minimum drawdown rate’ of your super pension fund (ie account-based pension), is recalculated and reset, based on your age and super pension balance.

However, back in March, at a time of ‘peak fear’ when the nature of COVID-19 was an unknown, and share markets were collapsing (between February 20 and March 23, the local sharemarket fell by 36%), the Federal Government introduced a temporary relief package of measures around superannuation.

Much like it did during the Global Financial Crisis twelve years earlier, the Government reduced the ‘minimum drawdown rates’ by up to half for the 2019/20 and 2020/21 financial year.

But why?

Most of us instinctively know that selling an asset (like shares or property) when markets are in the doldrums isn’t usually a great strategy. And when you think about it, a super-pension fund is essentially selling off a little of your super pie to pay you your income every month. So when markets have fallen so dramatically, and the future looks uncertain, it makes sense to take less income until markets recover if you can afford to.

So as most Australians have at least 50% of their super and pension funds exposed to the sharemarket, listed and unlisted property, the Government’s offer to temporarily dispense with the usual age/balance based minimum drawdown requirement was all about helping retirees preserve their retirement capital. That’s it, nothing more.

And while you wouldn’t know it from media reports, this initiative is entirely optional - you can keep your payments exactly as they are.

Here’s the problem…

From 1 July 2020, if you’re on ‘the minimum’ payment right now (as opposed to a specifically requested income payment), the vast majority of superannuation funds will be automatically reducing your payment by 50% in the new financial year, unless they here from you.

How can I keep my payments the same?

If you don’t want to accept the Government’s offer to temporarily reduce your minimum monthly payment you need to get on the front foot and immediately contact your superannuation fund, or financial adviser.

Rick Maggi, Certified Financial Planner, Westmount Financial