2009 Budget – Minimum pension relief

Written on 18th May, 2009

Extension of 50% minimum pension draw down relief from 1 July 2009

The Government will halve the minimum payment amounts for account-based pensions for 2009-2010. Reducing the minimum payment amounts for account-based pensions will assist pension account balances to recover from capital losses from the global recession.

This measure extends the pension drawdown relief provided by the Government for 2008-2009.

The minimum annual income payment for an account-based pension is calculated as a minimum percentage of the account balance as follows:

Age	Minimum annual payment	Minimum annual payment for 2008-2009 as per Regulations (announced 18 February 2009)*	Minimum annual payment for 2009- 2010 as per Government announcement
Under 65	4%	2%	2%
65-74	5%	2.5%	2.5%
75-79	6%	3%	3%
80-84	7%	3.5%	3.5%
85-89	9%	4.5%	4.5%
90-94	11%	5.5%	5.5%
95 and more	14%	7%	7%

*Note that where a pensioner has already received in excess of the reduced minimum, the minimum in their case will be the amount they have actually received. No refund will be allowed.

Note: These limits are based on the pensioner’s age at the commencement of the pension and at the start of each subsequent financial year.

Oculus comment

A client commencing an account-based pension from 1 July 2009 can defer an annual pension payment (equal to 50% of the legislated minimum) to 30 June 2010. Their next pension payment is not required to be drawn until 30 June 2011. This enables the client to maximise their tax-free earnings in their pension by limiting and deferring pension payments where possible.

Note that if a client commences an account-based pension part-way through 2009- 2010, they will need to draw down 50% of the pro-rated minimum amount by 30 June 2010.

If a client wishes to fully commute their pension in 2009-2010, they will still need to draw down 50% of the pro-rated minimum amount of the pension prior to commutation. In addition, if the commuted amount is rolled over to a new pension, the client will need to draw down 50% of the pro-rated minimum in the new pension.

Pension product providers will need to clarify whether a client who has already elected to draw the current 50% minimum pension in 2008-2009 will automatically have the 50% reduction in the minimum pension drawdown applied to their account in 2009-2010 or whether they will need to elect again that the reduced minimum applies.