Editorial - Superannuation e-news July 2010

An important announcement by the government on 30 June 2010 allowing for a 50% reduction in the minimum drawdown permitted for certain income streams during 2010-11 is excellent news for self funded retirees; notwithstanding the relative lateness of the announcement. Many self funded retirees will be extremely comforted to hear that the relief put in place for 2008-09 and 2009-10 in response to the plunging financial markets at the peak of the GFC will be extended to the current financial year. The relief has proven to be a huge boon for retirees, enabling many to get through the last couple of years without in some cases having to sell down significantly into severely depressed markets to meet their drawdown requirements.

Irrespective of the size of an account balance, one is never comfortable selling assets into depressed markets. In the case of superannuation, eroding the capital of the account has a critical bearing on the subsequent period of retirement when adequate self funding can still be maintained. This is a fact that self funded retirees are only too well aware of and something that has caused them deep anxiety through both the GFC and the current period of uncertainty. Retirees often prefer the prospect of tightening their belts and living off a lower income from their superannuation rather than allowing a massive hit on capital. Unfortunately for them, lower draw downs are of little consequence in relation to additional government support because that support invariably tracks more closely the value of their account balance. Retirees clearly feel the pain of lower incomes as they endeavour to protect their retirement nest eggs with lower superannuation draw downs. The current volatility and depressed state of markets provides ample justification for the recent drawdown relief measure proposed by government. It will apply for account based pensions (including allocated pensions) and market linked pensions.

Crucially, self funded retirees need strategic support to ensure that they are able to re-consolidate their superannuation. The alternative is that they would otherwise run out of retirement savings and be obliged to depend upon the Age pension benefits much sooner and therefore for longer. Given the likelihood of a long and patient wait for the return of better market conditions there are good grounds for the government to seriously consider fixing the minimum drawdown amounts at the reduced level for the foreseeable future. This will greatly assist the strategies of those retirees aiming to re-consolidate their superannuation resources, having recently faced the massive impact of the GFC.

Given the recent change in the Federal leadership, and the political imperatives in respect of the budget trajectory necessary for bringing about the budget surplus; the compromises arrived at between the government and the mining majors with the trashing of the Resources Super Profits Tax and its replacement with the new Minerals Resources Rent Tax, appears to be a major step forward. While it may still be early days, there is confirmation from the government that the superannuation initiatives proposed in the recent Federal Budget -and which were broadly very well received; will not be sacrificed. To this point the major fall-out will be with the proposed full 2% reduction in company tax will not be achieved. It will be halved. We believe the superannuation proposals are crucial nationally and are relieved that they have not been compromised in the recent negotiations.

In conclusion, at the time of writing the final recommendations of the Cooper Review into superannuation have just been released to the public. We are preparing an appreciation for members, so please watch this space.