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No change to super drawdown

The government has ruled out making any changes to superannuation drawdown rules, effectively leaving retirees freer to use super as an estate planning tool.

Responding to suggestions the government would increase the minimum super drawdown requirements, The Australian Financial Review quoted Social Services Minister Scott Morrison as saying:

“The government has no plans to make any changes to drawdown rates and rejects any suggestion that this is being actively considered by government,” he said. “The government is keen to ensure maximum stability and certainty for superannuation.

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“The government respects the fact that, unlike welfare benefits, superannuation savings are generated by the earnings of those who have accumulated them. The extent to which they draw down, other than the minimum requirements as currently stipulated, is up to them.”

The issue is part of a long-running – and apparently stalled – inquiry into Australia’s retirement income system. The government released a discussion paper on the subject last July, but since then nothing seems to have happened.

The purpose of the inquiry is to address the major flaw in the superannuation system: that as yet is not serving the purpose it was designed to serve, which is providing income in retirement.

Under current rules, retirees are able to spend their superannuation as quickly as they want and on whatever they want. This makes the Australian system a bit of an anomaly from a global perspective, but so far politicians have remained reluctant to address it.

The inquiry was also set up to look at ways to encourage financial products designed to deliver retirement, most notably guaranteed lifetime annuities. Normally provided by life insurance companies, lifetime annuities are a central part of many pension systems around the world. However, they are currently close to non-existent in Australia, which just one company – Challenger – providing a meaningful range of products.

Currently super drawdown minimums are as follows:

Age 65-74: must draw down five per cent of super balance every year.

Age 75-79: six per cent.

Age 80-84: seven per cent.

Age 85-89: nine per cent.

Age 90-94: 11 per cent.

Age 95+: 14 per cent.

There are no maximum drawdown levels, meaning retirees are free to withdraw the whole lot at once.

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