In response to the investment downturn as a result of the Covid-19 crisis, the Government has reduced the minimum annual payment required for account-based and market-linked pensions. In the 2019-20 and 2020-21 financial years the minimum will be 50% of the normal amount. For some market-linked pensions of a significant size, the net of tax amount will be more
than 50% of the previous net amount received.
Market-linked pensions started before 01/07/2017 are “capped defined benefit income streams”. The pensions can’t be commuted. Consequently, if the pension exceeds the defined benefit income tax cap (currently $100,000) 50% of the excess over this amount will be taxed at the persons current marginal tax rate.
Care will be needed if the pension amounts paid so far exceed the DB income tax when the reduction received Royal Assent on 24/03/2020. One will not be able to revisit past payment. I have altered the min/max market-linked pension calculator on the NetActuary website to show outcomes for a number of years and not just the current financial year. If one needs to test against the ABP minimum payment, there is a calculator for that also.
The Legacy Pensions are going to be challenging this year. Please don’t leave them until the end of the financial year – please!! It may be an opportune time to convert Lifetime Section 1.06(2) legacy pensions to a market-linked pension while assets are low. The fixup legislation for the TBC legislative foul up was in the Senate – so one may need to have faith that it will be enacted with the retrospective date and ATO pragmatism.
In keeping with the community spirit sorely needed by current terms, NetActuary will freeze its 2020/21 fees to $220 inclusive of GST for adequacy reports and $55 for ECPI reports.
For more details, please don’t hesitate to ‘phone Brian on (03) 9028 5002.
Brian Bendzulla
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