As the SMSF market continues to mature, the number of trustees entering retirement is growing. Currently, 67% of all SMSF trustees are aged over 50 and 19.4% are over age 64. This ageing group is going to put pressure on the SMSF market as a whole as they look to draw a pension from their retirement savings.
SMSF’s have been somewhat shielded from this pressure since the government reduced the minimum drawdown limits for account-based pensions by half for the 2008/09, 2009/10 and 2010/11 financial years.
However, from 1 July 2011 the 50% reduced amount will become a 25% reduced percentage factor before they resume at normal levels for the 2012/ 2013 financial year. So for the next 12 months the pension drawdown limits will be:
|
Age |
Percentage of account balance |
|
Under 65 |
3% |
|
65 – 74 |
3.75% |
|
75 – 79 |
4.5% |
|
80 – 84 |
5.25% |
|
85 – 89 |
6.75% |
|
90 – 94 |
8.25% |
|
Over 95 |
10.5% |
With pension factors moving to these higher levels, cashflow will be more important than ever in ensuring pension liabilities can be met from SMSFs without affecting the asset base and incurring unnecessary transaction costs.
If an SMSF does not produce enough income to pay its pension obligations the fund may have to start selling assets. This may create some issues for funds particularly those with illiquid assets such as direct property, mining stocks, artwork or collectables.
EXAMPLE
The following example uses the normal pension drawdown rates which will resume 1 July 2012.
As can be seen with the above changes the fund now has excess cash requirements of $260 in the first year.
Speak to your financial adviser about ensuring you have the appropriate asset allocation that allows you to meet the income requirements of your fund without drawing on your capital.
Data sources and assumptions:
Table 1:
Australian shares average yield across ASX from Russell ETFs: Income Hunter, April 2011
Average term deposit yield from Russell ETFs: Income Hunter, April 2011
Macquarie CMA interest 4.75% as at April 2011
Table 2:
Accounting fee of $3,670 from Intimate with Self-Managed Superannuation, 2011, SPAA/Russell
Table 3:
RDV yield from Russell ETFs: Income Hunter, April 2011
