For our valued clients with an Account Based Pension (ABP) or Transition To Retirement (TTR) account, we believe it's essential to keep you informed about the latest government changes that impacts your account. In this article, we will discuss the changes to drawdown rates for income payments and how they might affect your retirement income strategy.
Minimum Drawdown Rates: A Brief Overview
When you hold an Account Based Pension or Transition To Retirement account, it's important to remember that every financial year, you are required to withdraw a minimum amount from your account. These minimum drawdown rates are determined by the government and are based on your age, gradually increasing as you grow older.
Temporary Reduction in Minimum Drawdown Rates (until 30 June 2023)
To provide relief during challenging economic times, the government had temporarily reduced the minimum drawdown rates for all account-based pensions from March 2020 until 30 June 2023. This adjustment aimed to support retirees by allowing them to retain a larger portion of their savings within their superannuation accounts in response to COVID-19's impact on investment markets during periods of market volatility.
Standard Minimum Drawdown Rates (from 1 July 2023)
Starting from 1 July 2023, the government will revert to the standard minimum drawdown rates for all ABPs & TTRs. These rates will be applicable to all retirees, irrespective of their individual circumstances as per the below table.
If you’ve chosen your own payment amount prior to 30 June 2023;
your payment amount will stay the same from 1 July 2023 if your chosen payment amount is the same or greater than the standard minimum drawdown rate for 2023/244; or
your payment amount will automatically increase to the new minimum, if your chosen payment amount is less than the standard minimum drawdown rate.
The Impact on Your Retirement Income Strategy
The standard minimum drawdown rates will require retirees to withdraw a higher percentage of their account balance annually. While the reduced rates provided some flexibility over the past few years these changes may impact the sustainability of your retirement income and necessitate a review of your spending habits, budgeting, and investment strategy. There’s nothing you need to do as this minimum drawdown changes automatically.
Should you have any questions in relation to this and how it may impact you, please feel free to contact us and we will happily assist you.