On June 1 2020, the provisional tax relief measures for retirees kicks into gear.
These relief measures allow you to withdraw up to 20%, calculated on an annualised basis, from your living annuity for the period June 1 to September 1. This has changed from a previous maximum of 17.5%.
On the other hand, pensioners who would like to preserve more of their savings, especially given the recent drop in financial markets, will be allowed to limit their drawdown to 0.5%. Previously, the minimum drawdown rate was 2.5%.
It is important to note that you will be allowed to change your minimum or maximum drawdown rate even though you may not be on the anniversary date of your living annuity. Remember that under normal circumstances, you are only allowed to change your drawdown rate once a year on the anniversary date of your annuity.
Your previously selected drawdown rate, which you set at the most recent anniversary date, will revert after the temporary period ends at the end of September. If you decide not to make any changes during this time, then your drawdown rate will remain unchanged.
Government has made these provisional changes to the drawdown rate to help pensioners during these very strange and uncertain times. Some people may need more money to help care for themselves and their families, while others may want to preserve as much of their savings as possible, especially if they are still working or have found another source of income during this time.
If you consider increasing your drawdown to the maximum rate of 20%, please discuss this with your Certified Financial Planner (CFP®) before making a final decision. For one, you may have other options available to you, before you have to draw on your life savings, and for another, you may be able to restructure your current expenses to lessen the load on your monthly pension savings.
In reference to other income, you should discuss possible grants and the option of returning to work, even part-time, as alternatives to drawing more from your living annuity. You should keep in mind that your life savings have most probably taken a beating during the recent market turmoil and it may be advisable to leave as much of your savings in place until the market has had time to recover.
People often baulk at the idea of applying for government help or returning to work after retirement but don’t let pride stand in your way. We are currently living through an unprecedented time and we are all in this together.
You should also speak to your financial adviser about aggressively lowering your expenses. Start with your short-term insurance policies and discuss possible discounts. Revisit your budget and try hard to remove any expenses or replace them with cheaper alternatives.
Only after you have exhausted these options should you consider increasing your drawdown rate.
If you are able to decrease your drawdown rate to 0.5%, as allowed by these temporary measures, we would advise that you jump at the chance. Many of our clients have found that they can manage on less than 2.5% of their living annuity, especially if they still work, and it would allow your funds to recover from recent market turmoil.
At Ascor® and as an industry, we have submitted to the government that the temporary minimum drawdown rate of 0.5% should remain in place after September, while the maximum can return to 17.5%. We hope that this will be enacted, allowing us and our clients to protect and grow their wealth, even after retirement.