In a blog, Heffron head of SMSF technical and education services Lyn Formica said that by holding off on taking payments, pensioners may be able to take advantage of any reduction in drawdown amounts.
However, Ms Formica warned that the major downside of doing so is that if no relief is provided and markets continue to fall, paying the minimum pension amount will potentially require the sale of even more assets within the super fund.
“The same assets can be re-purchased outside superannuation when the member receives their cash pension payment,” she said.
“But it does mean that the assets will be permanently outside superannuation and so will any future recovery in their value.
“Of course, if no changes are made, the full minimum amount will still need to be paid by 30 June 2020.”
Ms Formica noted that in the 2008–09 global financial crisis, the government provided relief to pensioners by halving the minimum required drawdown amount for a number of years, but also added that it is not yet known whether the government will respond in a similar manner to the latest economic crisis.
In the meantime, Ms Formica said all SMSFs that are drawing pensions must be paid a minimum amount from their superannuation fund each financial year.
Where the pension concerned is an account-based pension, transition to retirement income stream or a market-linked pension, she said, this minimum payment is generally linked to the value of their pension account on 1 July of each year.
“For those in receipt a pension on 1 July 2019, their minimum amount for the 2019–20 year was calculated based on fund asset values as at 1 July 2019 when equity values were higher,” Ms Formica said.
“Since pension payments must be made in cash (rather than by transferring assets out of the fund to the member), in some cases meeting minimum drawdown requirements before 30 June 2020 may mean having to sell investments and realise losses in a depressed market.”
It’s sensible to be prudent.
And for the government to reduce the drawdown minimum requirement, would soften the financial blow for many SMSF’s trying to see through this crisis.
I am retired and my view is what I think is sensible based on over 30 years of F P experience.As a F P, I only charged fees on the non-cash invested funds and was happy to see my income decrease as trustees from time to time met a few lifetime goals.More recently as a SMSF auditor I regularly had to report on trustees using the annual draw down method not meeting the prescribed amounts or times. That means a non-complying fund.
Not all trustees have 3 years of cash funds, they have it invested. Most that I deal with take minimal (if any) drawings through the year and just do a large payment at year end.
I can’t see this as reasonable advice. Any sensible SMSF trustee would draw a monthly amount equal to meet their yearly drawdown requirement from cash accounts. These cash funds would normally be sufficient to cover around three years of drawings,so selling investments should not be a problem. Secondly too many retirees are too cautious with their spending and end up leaving a big legacy. With the virus problems,go out and buy that Grange you always wanted to try, or get the damn lamb chops
What is sensible depends on your point of view. Leaving pension payments until later in year has the interest on the capital taxed, if at all, at better rates. Most retirees have been prudent with their money in the past – it is hard to change lifetime practices – even with expensive holidays (now curtained!). And from the sounds of your comment these trustees are keeping you in a job and contributing to your wages and financial benefit. Don’t look a gift horse in the mouth. From a prudent and sensible trustee with plenty of cash to pay pensions..
I agree with Eleanor – we pay our minimum pensions in a lump sum in late June to maximise ECPI in a mixed accumulation/pension fund. Looks like this reduction will be announced by the government tomorrow and hopefully it’s half like it was in the GFC.