When interest rates and investment returns were depressed during the global financial crisis, the government lowered the minimum pension drawdown rates by 50 per cent, before restoring them in 2013/2014.
However, the SMSF Owners’ Alliance (SMSFOA) believes that given the current economic and interest rate environment, the time is right for the government to again consider lowering the mandatory superannuation pension.
SMSFs typically hold a relatively large proportion of their assets in cash, SMSFOA said, with the concentration of cash particularly pronounced in smaller funds.
“Smaller funds (less than $200,000) hold 45 per cent or more of their assets in cash; the average fund ($1-2 million) hold 33 per cent in cash,” the group stated.
“With $156 billion held in cash by SMSFs, each 0.25 per cent reduction in interest rates reduces overall SMSF earnings by $390 million.
“Compounding the effect of low interest rates on fund earnings, it is likely that, in time, dividends from listed companies will be lower given the general slowdown in economic activity in Australia,” SMSFOA said.
As a Financial Planner and Accountant of 40 years standing I cannot agree with this proposition.With equity and property markets having provided investors with very good returns over the past three years, a well balanced SMSF would have significantly returned better than the required minimum pension over that time. The minimums were reduced during and after the GFC due to very low returns and negative returns which reduced pension balances. The same cannot be said of the current investment climate. Certainly those who take an ultra-conservative approach to the asset allocation of their SMSF will be penalised, but this juts emphasises why they should be considering other areas of investment apart from cash and term deposits.
I have written to the Treasurer and my local member about this very issue. It is common sense to acknowledge what affect low interest rates are having on super fund incomes v the minimum pension withdrawal rates.