July 1 Changes for Retirees

There are a range of changes that are due to take effect from July 1, 2023 that may affect retirees and those looking to retire in the near future. The upcoming changes include increases to the minimum drawdown rates, modifications to the eligibility age for the Age Pension, adjustments to the income and asset thresholds for recipients of the full Age Pension, and changes to some superannuation regulations. It is recommended that you review these and determine which changes may affect you and your situation.

Minimum Drawdown Rates

The minimum drawdown rates for income payments from super are set to double. These rates were temporarily reduced during the COVID-19 pandemic to support retirees. However, with the pandemic largely over and normal activities resumed, the reduction is ending, and the full percentage drawdowns will be reinstated on 1 July. These drawdowns represent the legislated minimum annual payments for super income streams, applicable to pensions or annuities commenced after 1 July 2007. The changes can have a significant impact on retirement savings, so it's important to be aware of the changes.

Age at 1 July	New (standard) minimum drawdown rates from 1 July 2023	Previous (temporary 50%) drawdown rates until 30 June 2023
60-64	4%	2%
65-74	5%	2.5%
75-79	6%	3%
80-84	7%	3.5%
85-89	9%	4.5%
90-94	11%	5.5%
95 or over	14%	7%

The minimum withdrawal amount for income streams from super is increasing, but it remains below 10% of the account balance for individuals below 90 years of age. This means that approximately 90% of savings can still remain in super if desired. However, it is important to plan for how long savings will last and consider transitioning to an Age Pension if they fall within the asset thresholds.

Age Pension age increases

Eligibility for the Australian Age Pension depends on several factors, including your age, residency status, and ability to pass a means test based on income and assets.

If you were born on or after 1 January 1957, you must be 67 years to be eligible for Age Pension. You can submit your claim in the 13 weeks before you reach Age Pension age.

Whilst the income and asset thresholds for those on a part-Age Pension changed on 20 March, in line with indexation. Thresholds for those on a full pension are scheduled to change on 1 July.

Full Age Pension income threshold increases by:

- Singles threshold $204 per fortnight, increase is $14 per fortnight, $364 per annum
- Couples threshold $360 per fortnight, increase is $24 per fortnight, $624 per annum

(for those who receive a pension, a Work Bonus Credit of $11,800 can be added to these amounts until 31 December 2023)

Upper (Disqualifying) income threshold increases by:

- Singles threshold $2332, increase is $14 per fortnight, $364 per annum
- Couples combined threshold $3568, increase is $24 per fortnight, $624 per annum

Full Age Pension assets threshold increases by:

- Single homeowners threshold $301,750, increase is $21,750
- Single non-homeowners threshold $543,750, increase is $39,250
- Couple homeowners combined threshold $451,500, increase is $32,500
- Couple non-homeowners combined threshold $693,500, increase is $50,000

Upper (Disqualifying) asset threshold increases by:

- Single homeowners threshold $656,500, increase is $21,750
- Single non-homeowners threshold $898,500, increase is $39,250
- Couple homeowners combined threshold $986,500, increase is $32,500
- Couple non-homeowners combined threshold $1,228,500, increase is $50,000

The increase in the lower thresholds means more people will qualify for a full Age Pension than was previously the case and part pensioners could get slightly more as the taper rate kicks in later. The increase in the upper threshold means some people previously ineligible will now qualify.

Also note, deeming rates would normally be reviewed on 1 July each year. This year there will be no change as they are frozen until 30 June 2024.

Increase in Transfer Balance Cap

Due to indexation, the general Transfer Balance Cap of $1.7 million will increase to $1.9 million on July 1st of this year. Transfer Balance Caps (TBCs) limit the amount that can be transferred from an accumulation fund into an Account-Based Pension. While the tax on earnings in the accumulation phase of your super is 15%, there is no tax on earnings in Account-Based Pensions. As a result, many retirees transfer the maximum allowable amount into a retirement pension to avoid taxation on earnings.

Super Guarantee moves from 10.5 -11%

Starting on July 1st of this year, in accordance with legislation, the Superannuation Guarantee (SG) will increase from its current level of 10.5% to 11%. The SG is a mandatory requirement that mandates a portion of your earnings be deposited into your super fund by your employer.

The SG rate will continue to increase by 0.5% per year until it reaches 12% in July 2025. Presently, this amount is paid quarterly. However, from July 2026, it will change to 'payday' contributions.

If you are still employed, and SG contributions are made to your super fund, it is worthwhile to verify if the SG is included in your salary package. If this is the case, you might receive a lower income as the extra 0.5% will be deducted from your entire package, not just from your employer.

If you need help with understanding any of these changes further, please do not hesitate to contact us.