Low interest rates force SMSF investment plan changes

Trustees of self-managed superannuation funds are being forced to restructure their investment strategies as a result of all-time low interest rates. Low interest rates force SMSF investment plan changes

Account based pension statutory percentages are too high in an environment where deposit interest rates offered by financial institutions are giving SMSF trustees minimal returns.

When in pension mode, the drawdown amount can cause unnecessary restructuring of the SMSF investment strategy to ensure sufficient cash to make these payments.

“Our members are being forced to sell down capital assets such as real property and long-term share portfolios to make drawdowns that they don’t want or need to make”, says Moti Kshirsagar, CEO of Taxpayers Australia Ltd.

In order to maintain complying pension status, superannuants aged between 75 to 79 years are required to drawdown 6% of their account balance, those between 80 to 84 years of age 7%, those between 85 to 89 years 9%, those over 90 years of age 11%, and those lucky enough to live longer than 95 years of age, 14%.

“With small returns from less risky investments — that is, cash, term deposits and fixed interest, there isn’t enough income to fund these drawdowns, ” says Kshirsagar.

These eroding drawdown rates may require many elderly Australians to resort to relying on the government Age Pension as they live beyond their 80s and into their 90s.

The Reserve Bank has yesterday left the official interest rate at 2%, with the outlook for interest rates to remain at record lows for the foreseeable future.

“During the global financial crisis, from 2008 to 2011, the government reduced the pension drawdown percentage to half the current day amounts,” Kshirsagar says. “With the official interest rate remaining at an all-time low, the time to act is now!”

ENDS

Note to editor: If you’d like more information about this topic or to schedule an interview with Taxpayers Australia’s Business Services Manager, Lisa Greig, please call her on (03) 8851 4505 or Roseann Tanner on (03) 8851 4504 or email rtanner@taxpayer.com.au.

Taxpayers Australia is a not-for-profit organisation committed to a fairer and more transparent taxation system for every Australian taxpayer. Its aim is to provide taxation practitioners, superannuation professionals, small businesses and individuals with up-to-date, informative and above all understandable information about taxation – to ensure that every Australian pays the right amount of tax and not a cent more.

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