SMSFs in flashback to 2008

Self-managed super fund professionals and trustees may be feeling some deja-vu, as the same measures that were used in 2008 have been brought in to guide the sector through the COVID-19 pandemic.

Terry Pinnell, chair of the Ethical Advisers' Co-op, wrote to Treasurer Josh Frydenberg last week to ask him to institute the same measures for SMSF pensioners that the Rudd Government introduced during the Global Financial Crisis.

In 2008, the government made a temporary reduction to the minimum pension payment to assist SMSF pensioners who suddenly found their funds' holdings devalued.

By the weekend, Pinnell's wish had been granted. The government's stimulus package included measures to help SMSF trustees cope with the fallout of COVID-19.

In 2008 the minimum percentage withdrawal for the 2008-09, 2009-10, 2010-11 financial years was 2% for someone under 65, 3% for someone 75-79 and up to 7% for someone over 95.

In the 2011-12 and 2012-13 financial years the rates rose to 3% for under 65, 4.5% for someone 75-79 and up to 10.5% for someone 95 or over.

The rate continued to rise in the years following, all the way up to 14% for someone over 95.

Now, for the first time since the GFC minimum percentages withdrawal factors are at 2008 levels.

"I had several SMSF clients in 2008 in the GFC and some of them used the lower pension payments to help with cash flow in the fund and it also meant that they didn't have to sell down any low priced assets to pay a statutory pension amount that they didn't really need," Pinnell said.

Verante Financial Planning SMSF specialist adviser Liam Shorte explained while the change may be small to some, it could be very significant to those who need it most.

"It may not seem generous to people around 65 -74 who need to only take 2.5% of their July 1 balance (normally 5%) but for some aged 85 they need to normally take 9% minimum which they often don't need so being able to reduce that to 4.5% is welcome," Shorte said.

"Even for those younger retirees, they can use this to implement strategies to make their pension last longer and keep more in pension phase when a spouse dies."

Pinnell pointed out that lowering the percentages for withdrawals is especially sensible amid the COVID-19 situation.

"They might have to self-isolate for up to six months and not doing any travel, going to theatres or restaurants. They simple won't need the income and they can keep it in a zero tax environment," Pinnell said.

"This change gives SMSF pensioners and self-funded retirees some flexibility in how much to take out of their super."

The SMSF Association also welcomed the measures.

"The Association has been calling for a temporary reduction in superannuation minimum drawdown rates in recognition of the share market volatility that has seen the Australian market fall more than 30% since its record peak on February 20 this year," SMSF Association chief executive John Maroney said.

"So, by implementing this important measure on drawdown rates the government is giving SMSF trustees the discretion and flexibility to better manage their superannuation assets in these testing times."

Read our full COVID-19 news coverage and analysis here.

Read more: SMSF AssociationEthical AdvisersJohn MaroneyLiam ShorteTerry PinnellVerante Financial Planning
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