Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. Josh Frydenberg MP)Chapter 10 Superannuation drawdowns
Outline of chapter
10.1 Schedule 10 to this Bill amends the SIS Regulations and RSA Regulations to give effect to the Government's announced measure to reduce the minimum payment amounts for account based pensions, allocated pensions and market linked pensions (and for the equivalent annuity products) by half for the 2019-20 and 2020-21 financial years.
Context of amendments
10.2 The SIS Regulations and RSA Regulations require that a minimum payment be made from a pension or annuity at least annually. Minimum payments are determined by age and the value of the account balance at 1 July of each year.
10.3 Minimum annual payment rules are designed so that retirees draw down on their superannuation capital over their retirement. This rule recognises that superannuation is a retirement savings vehicle, supported by substantial tax concessions, designed to provide income in retirement.
10.4 This measure is designed to assist pension and annuity account balances to recover from capital losses associated with economic shock from the Coronavirus health crisis by allowing retirees to adjust their drawdowns to their depreciated asset holdings and avoid being forced to sell assets in loss positions to fund income stream payments.
Summary of new law
10.5 The amendments in Schedule 10 to this Bill reduce the minimum payment amounts that apply to account-based annuities and pensions, allocated annuities and pensions, and market linked annuities and pensions for the 2019-20 and 2020-21 financial years by half.
Comparison of key features of new law and current law
| New law | Current law |
| The minimum drawdown rates that apply for pensions and annuities calculated in accordance with the relevant formula for the 2019-20 and 2020-21 financial years is reduced by half. | For the 2019-20 financial year, the minimum drawdown rates for pensions and annuities were calculated in accordance with the relevant formula on 1 July 2019.
For the 2020-21 financial year, the minimum drawdown rates for pensions and annuities will be calculated in accordance with the relevant formula on 1 July 2020. |
Detailed explanation of new law
Retirement Savings Accounts Regulations
10.6 Schedules 1 and 1A to the RSA Regulations set out the formula for calculating the minimum and maximum payment limits for allocated pensions paid from retirement savings accounts.
10.7 Clause 2 in each of Schedules 1 and 1A sets out the formula for calculating the minimum payment limits.
10.8 Clause 3A in each of Schedules 1 and 1A provides that, for the financial years commencing on 1 July 2008, 1 July 2009 and 1 July 2010, the minimum payment limit is half the amount worked out using the formula in clause 2.
10.9 Schedule 10 to this Bill amends clause 3A in each of Schedules 1 and 1A so that the reduced rate also applies to the financial year commencing on 1 July 2019 and 1 July 2020. [Schedule 10, items 1 and 2, clause 3A of Schedules 1 and 1A to the RSA Regulations]
10.10 Schedule 4 to the RSA Regulations contains the rules for calculating the annual payment amounts for market linked pensions.
10.11 The formula for determining the annual payment amount is set out in clause 1 of Schedule 4.
10.12 Clause 10 of Schedule 4 provides that, for the financial years commencing on 1 July 2008, 1 July 2009 and 1 July 2010, an amount is taken to have been determined in accordance with clause 1 if it is:
- •
- not less than 45 per cent of the amount determined in accordance with clause 1 (that is, 50 per cent of the lower payment limit specified under clause 8); and
- •
- not greater than 110 per cent of the amount determined in accordance with clause 1.
10.13 Schedule 10 to this Bill amends clause 10 so that the reduced rate also applies to the financial years commencing on 1 July 2019 and 1 July 2020. [Schedule 10, item 3, clause 10 of Schedule 4 to the RSA Regulations]
10.14 Schedule 5 to the RSA Regulations contains the rules for calculating the minimum payment amount for an account-based pension.
10.15 The formula for calculating the minimum payment amount is set out in clause 1 of Schedule 5.
10.16 Clause 3A of Schedule 5 provides that, for the financial years commencing on 1 July 2008, 1 July 2009 and 1 July 2010, the minimum payment amount for an account-based pension is half of the amount worked out under the formula in clause 1.
10.17 Schedule 10 to this Bill amends clause 3A of Schedule 5 so that the reduced rate also applies to the financial year commencing on 1 July 2019 and 1 July 2020. [Schedule 10, item 4, clause 3A of Schedule 5 to the RSA Regulations]
Superannuation Industry (Supervision) Regulations
10.18 Schedules 1A and 1AAB to the SIS Regulations set out the formula for calculating the minimum and maximum payment limits for allocated pensions (and for the equivalent annuity product).
10.19 Clause 2 in each of Schedules 1A and 1AAB sets out the formula for calculating the minimum payment limits.
10.20 Clause 3A in each of Schedules 1A and 1AAB provides that, for the financial years commencing on 1 July 2008, 1 July 2009 and 1 July 2010, the minimum payment limit is half of the amount worked out using the formula in clause 2.
10.21 Schedule 10 to this Bill amend clause 3A in each of these Schedules so that the reduced rate also applies to the financial year commencing on 1 July 2019 and I July 2020. [Schedule 10, items 5 and 6, clause 3A of Schedules 1A and 1AAB to the SIS Regulations]
10.22 Schedule 6 to the SIS Regulations contains the payment rules for market linked income streams and clause 1 of Schedule 6 sets out the formula for determining the annual payment amount.
10.23 Clause 10 of Schedule 6 provides that, for the financial years commencing on 1 July 2008, 1 July 2009 and 1 July 2010, an amount is taken to have been determined in accordance with clause 1 if it is:
- •
- not less than 45 per cent of the amount determined in accordance with clause 1 (that is, 50 per cent of the lower payment limit specified under clause 8) and
- •
- not greater than 110 per cent of the amount determined in accordance with clause 1.
10.24 Schedule 10 to this Bill amends clause 10 so that the reduced rate also applies to the financial years commencing on 1 July 2019 and 1 July 2020. [Schedule 10, item 7, clause 10 of Schedule 6 to the SIS Regulations]
10.25 Clause 1 of Schedule 7 to the SIS Regulations contains the rules for calculating the minimum payment amount for an account-based pension (and the equivalent annuity product).
10.26 Clause 4A of Schedule 7 provides that, for the financial years commencing on 1 July 2008, 1 July 2009 and 1 July 2010, the minimum payment amount for an account-based pension (and the equivalent annuity product) is half of the amount worked out under the formula in clause 1.
10.27 Schedule 10 to this Bill amends clause 4A of Schedule 7 so that the reduced rate also applies to the financial year commencing on 1 July 2019 and 1 July 2020. [Schedule 10, item 8, clause 4A of Schedule 7 to the SIS Regulations]
Application and transitional provisions
10.28 The amendments in Schedule 10 to this Bill will commence on the day after this Bill receives Royal Assent.