The current state of the world financial markets continues to bring great despair to many self-funded retirees. With the ASX All Ordinaries trading at about 4,800 around Federal Budget night, the Government in their wisdom decided on a path to ‘normalise’ the minimum pension factors by 1 July 2012. This resulted in the previous 50% reduced minimum pension becoming a 25% reduced amount for 2011/12.
This all seemed fairly reasonable at the time… However, move forward four (4) months, with the ASX All Ords loitering around 4,000 points, many trustees are again facing the prospect of having to ‘fire-sale’ assets to meet their minimum pension payments for the current financial year. If things don’t improve fairly soon (and I’m not holding my breath), I believe there needs to be a unified voice from within the super industry to request further relief.
Is there any way to take a greater reduced amount of pension similar to what I took last financial year?
Perhaps… Let’s consider the following example.
Greg (63) had a $900,000 member balance as at 1 July 2011. His minimum for the 2011/12 financial year is 3% of his account balance, being $27,000. He takes these pension payments in equal monthly amounts. In the previous year, the 50% reduced minimum (2%) would have been $18,000.
Due to the horrendous downturn in the financial markets, Greg’s account balance as at the end of September is now just $720,000. If Greg, fully commutes his pension and re-commences with the lower balance, his pro-rata minimum for the year will be $16,170 ($720k x 3% x 275/366 days).
Assuming Greg took $6,750 (3 x $2,250) between July – Sept (pro-rata minimum), and $1,796 per month from now on, his combined pension payments for the financial year will total $22,920. When dividing this against the $900,000 pension balance as at 1 July, this equates to a 2.5% minimum for the financial year – a reduction of 0.5% (or $4,080) on the original minimum required for 2011/12.
If things continue the way they are, I think the grumblings on this pension issue will start to rise…