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Halving drawdown rates to benefit certain client groups

Meg Heffron
By Adrian Flores
27 March 2020 — 2 minute read

Advisers should be engaging with particular groups of clients that are best placed to benefit from the reduction of minimum pension drawdown rates, an administrator advises.

The 50 per cent reduction of the minimum drawdown requirements for account-based pensions and similar products for 2019–20 and 2020–21 was part of the government’s changes to super in response to COVID-19.

Speaking at a recent webinar, Heffron chief executive Meg Heffron cited three particular groups of clients that advisers should be proactively contacting in relation to this change.


Trustees with market-linked pensions

Ms Heffron said the reason you might target people with very large market-linked pensions is that they have to pay tax half of the excess of their pension payments over $100,000, but if they only have to take half as much now, that effectively might have a significant reduction in the amount they pay tax on.

“Let’s say the pension payments were $400,000 a year, a very large market-linked pension. At the moment, theyre saying, well, the normal minimum — $400,000 less $100,000 — is $300,000. Ive got to add half of that, $150,000, to my assessable income and pay tax on it,” she explained.

“Now instead of being $400,000 minimum, its only $200,000 minimum, their excess is only $100,000. We dont do anything to that $100,000 were knocking off. It stays the same.

“So, theyre adding much less to their assessable income and they will be delighted if you tell them they can draw less, particularly if you tell them now before theyve actually drawn it. If you dont tell them until June after they already have, they might not be so happy.”

Trustees worried about not meeting minimum pension payments

Another client group worth contacting, according to Ms Heffron, is people who are worried about not having enough cash to make their minimum pension payments and are looking at having to sell assets to make their minimum.

She said that’s exactly why the government introduced the drawdown measure in the first place.

“Its not really because putting less money in peoples hands at a time like this makes sense. Its because they obviously were anticipating that a lot of people wouldve seen their retirement savings drop like a stone and might not have had cash on hand to meet pension payments,” Ms Heffron said.

“Theyd be seriously worried about selling at the bottom of the market to provide cash to make pension payments.

“They are exactly the people for whom this was designed and theyre the people to reach out to now and say, ‘Dont sell your assets unless you want to because its a good investment decision. But you dont need to to meet your pension payments. You only need to pay out a lot less now’.”

Trustees wanting to treat drawdown like a partial commutation

As an administrator, Ms Heffron said it offers special minutes that allow trustees to say in advance that if a pensioner takes more than they need to, it can be treated as a lump sum from either their accumulation account or from their pension as a partial commutation.

She said the group of clients for whom treating the excess like a partial commutation will also find the government’s drawdown measure valuable.

“If they dont have minutes in place that make that happen automatically, they would be the people to get in touch with now, and do that right now,” Ms Heffron said.

Adrian Flores

Adrian Flores

Adrian Flores is the deputy editor of SMSF Adviser. Before that, he was the features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at This email address is being protected from spambots. You need JavaScript enabled to view it..

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