Call to Increase Pension Reduction Percentage

In the May 2011 budget the Australian Government announced that the Australian economy is in a strong position. Timely and targeted stimulus helped Australia to avoid recession during the global financial crisis and real GDP in now growing at around it trends rate. The Government announced that the global economy has recovered from recession faster than expected and financial market conditions have improved since the sharp increase in market volatility and stress experienced in mid-2010 when the European sovereign debt crises reached its peak.

Following the recent days activities on the world stock markets, we wonder if the Government is eating its words. The 50% pension drawdown relief was provided by the Government for the financial year ended 30 June 2008 to 2011. The reduction in the minimum payment amounts applies to account-based, allocated and market-linked (term allocated) pensions. From 1 July 2011 this reduction has been halved to 25% and from 1 July 2012 minimum drawdowns return to the legislated minimum rates.

Over the last week, billions of dollars have been wiped off the Australian Stock Market and Superannuation benefits of members. To only have the 25% reduction for the 2012 financial year based on valuations at 30 June 2011, again means retirees are going to have to sell assets at large losses to fund their pension obligations.

There were two main reasons for the initial reduction, both to do with the economic downturn at the time.

·         To give pension holders a chance to keep more money in their accounts, rather than selling while the market is low; and

·         Because the ‘minimum amount’ calculation is based on your account balance at 1 July each year, and many pensions have significantly declined in value recently.

This all sounds too familiar in the current market.

With the current market conditions fast approaching levels of 2009 we call on all trustees and pension members to write or email the Treasurer Wayne Swan MP and Mr Bill Shorton MP, Minister for Financial Services and Superannuation to immediately increase the reduction back to the 50% exemption for the 2012 financial year in order to preserve members superannuation entitlements during this time.

IPS Superannuation Pty Ltd