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New legislation has officially enacted the recent announcement that the minimum pension payments for the current financial year would be halved. This measure addresses concerns that the minimum payment amounts were set based on account balances at 1 July 2008, when most balances were higher.
The change applies to the following pensions:
• account-based pensions (‘ABPs’)
• transition to retirement income streams (‘TRISs’)
• allocated pensions (‘APs’) and transition to retirement allocated pensions (‘TRAPs’)
• market linked pensions (also known as term allocated pensions) (‘MLPs’).
Minimum pension amounts for other types of pensions remain the same. This means that the new rules have no impact on defined benefit pensions such as lifetime, fixed term or flexi-pensions.
Essentially, this means the relevant minimum percentage factors for ABPs and TRISs for the current financial year are as follows:
| Age of pensioner on 1/7/2008 |
NEW Percentage factor |
| Under 65 |
2.0 |
| 65 – 74 |
2.5 |
| 75 – 79 |
3.0 |
| 80 – 84 |
3.5 |
| 85 – 89 |
4.5 |
| 90 – 94 |
5.5 |
| 95 or more |
7.0 |
Consider the following example: John is receiving a pension, which commenced on 1 July 2007 and was 64 on 1 July 2008. His account balance on 1 July 2008 was $850,000. Therefore, for the current financial year, the minimum pension payment necessary has been halved to 2% x $850,000 = $17,000.
There are a number of key points to note:
Only affects the current financial year
The legislation only applies to the current financial year (ie, the year commencing 1 July 2008). In future financial years, the usual amounts will apply unless further relief is forthcoming.
No concessions for those who have already paid their minimum
Unfortunately, the changes come too late for those who have already paid their minimum pension amounts for the current year. For example, no special rules were introduced to allow pensioners to return amounts paid in the current financial year in excess of the new minimums to their fund without the returned amount being counted as a contribution subject to the regular rules relating to contributions.
Proper documentation is vital to take advantage of changes
The legislation does not stipulate that all pensions will automatically adopt the new lower minimum. Therefore, the trust deed and documentation establishing the pension should be checked. For further information please contact Tony Rimac on 98911544.
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