April 19, 2022

Budget breakdown – how superannuation changes will affect pensioners

The recently announced 2022-23 Federal Budget presented key changes to taxation, business, and superannuation, with the minimum pension drawdown amount put in the spotlight. While the impact of these changes varies from person to person, there are some key factors you should consider if you’re approaching retirement or have a family member on the pension.

Minimum drawdown rate reduction extended

The reduction in the minimum pension drawdown amount for superannuation pension recipients has been extended for another year, making it only 50% of the general amount. If we put this into practice, a 65-year old would usually need to draw down 5% of their opening balance as a pension payment throughout the year to qualify for tax concessions. For the 2022-23 financial year, the minimum amount will drop to 2.5%.

With the aim of providing pensioners greater flexibility and certainty over their savings, this measure is set to cost the Federal Government around $19.2 million dollars over 2022-23. Like everything, there are gains and losses associated with the change so we recommend you consider the big picture – not just the initial impact it will have on you.

Implications for pensioners & beneficiaries

At the surface level it’s beneficial for you to keep as much of your money in super as possible – if it’s not required for you to live on, that is. However, this is a double-edged sword that needs to be carefully considered and weighed against your circumstances. 

In this instance, what you need to be mindful of is that at some point the remaining balance will be passed onto the next generation, potentially as a part of their inheritance. Your children or beneficiaries may be subject to as much as 17% tax on the capital value if the superannuation balance includes a taxable component.

Tax treatments can vary depending on whether your super is paid as a lump sum, income stream or combination, and if your beneficiary or beneficiaries are classified as tax dependants. A tax dependant is classified as:

  • a current spouse or defacto
  • children of the deceased who are under the age of 18
  • any other financial dependents

If your beneficiaries are not financially dependent on you, then they will have to pay tax on the inheritance that you have left for them in your superannuation fund. If you take that balance out of your super and it is passed on to your children as a part of your estate instead, there will be no death duties (i.e. inheritance tax) payable. 

Key considerations 

Superannuation can be complex, especially if you’re trying to navigate it by yourself! It doesn’t have to be so difficult, here are five considerations that will help you ensure you’re well prepared for your pension years.

  • General retirement adequacy – how much money you’ll actually need to retire on
  • How to manage your finances in retirement
  • Old age issues that could arise
  • Using your home to fund retirement and insurance (and embracing the grey nomad lifestyle)
  • Recent changes to superannuation measures (including the extended timeframe of the minimum pension drawdown)

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In conclusion 

Consulting with a professional is the best way to ensure that your pension is operating at its most effective level and provide peace of mind by helping you understand how to get your affairs in order.

If you want to retire comfortably and secure a bright future for both yourself and those around you, get in touch with our team of experts today to discuss how you can best manage your super!

Filed Under: Financial Awareness, Tax

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