• News
  • 24 March 2020

Over the past two weeks, the government has announced multiple economic stimulus packages to cushion the economic impact of the Coronavirus. To date, almost $200 billion is being injected into the economy by the RBA, Federal, and State Governments. Part of these economic stimulus packages includes important superannuation measures that you should be aware of.

Temporarily reduce superannuation minimum drawdown rates

The Government is temporarily reducing superannuation minimum drawdown requirements for account-based pensions and similar products by 50 per cent for 2019-20 and 2020-21. This measure will benefit retirees by providing them with more flexibility as to how they manage their superannuation assets.

Individuals who have already taken their minimum pension amount for the 2019/20 financial year will not able to put that money back into his superannuation account under these changes.  

Reducing social security deeming rates

As of 1 May 2020, the upper deeming rate will be 2.25 per cent and the lower deeming rate will be 0.25 per cent. The reductions reflect the low-interest-rate environment and its impact on the income from savings. 

The change will benefit around 900,000 income support recipients, including around 565,000 people on the Age Pension who will, on average, receive around $105 more from the Age Pension in the first full year that the reduced rates apply. 

The changes will be effective from 1 May 2020.

Example:

Leslie and Brian are an age pensioner couple. They have $550,000 worth of financial assets. They hold $300,000 in a superannuation account with a conservative investment strategy which returned around 5 per cent last year. They have invested $130,000 in a term deposit with an annual return of 1.5 per cent and hold the remainder in a cash transaction account earning a negligible rate of interest. 

Under the former deeming rates, Leslie and Brian’s Age Pension would have been reduced by $65 each per fortnight. Under the new deeming rates, Leslie and Brian’s Age Pension will only be reduced by around $32 each per fortnight.

Early release of superannuation

While superannuation helps people save for retirement, the Government recognises that for those significantly financially affected by the Coronavirus, accessing some of their superannuation today may outweigh the benefits of maintaining those savings until retirement.

Eligible individuals will be able to apply online through myGov to access up to $10,000 of their superannuation before 1 July 2020. They will also be able to access up to a further $10,000 from 1 July 2020 for approximately three months (exact timing will depend on the passage of the relevant legislation).

The exact eligibility requirements will be formed in the coming days but broadly to apply for early release you must satisfy any one or more of the following requirements: 

  • you are unemployed; or 
  • you are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
  • on or after 1 January 2020: 
    • you were made redundant; or
    • your working hours were reduced by 20 per cent or more; or
    • if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more.

There is no requirement that you are already receiving Commonwealth income support payments and there is no waiting period.  There are no income or assets tests. Even someone with a very high salary who remains employed and has other assets could access this payment as long as their salary has been reduced by 20% after 1 January 2020. While they might choose not to, many could well do so if their superannuation is more easily accessed in cash than other assets and if their reduced income is not sufficient to meet living costs that cannot be adjusted quickly to reflect their new situation (eg large mortgage payments, rent etc).

People accessing their superannuation will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.

To access benefits held in funds other than SMSFs:

  1. You will be able to apply directly to the ATO via your myGov account at  https://my.gov.au/
  2. The ATO will process the application and confirm your eligibility
  3. The ATO will provide you and your superannuation fund with a determination.
  4. Your fund will then pay you.

You should make sure that your fund has the right bank account details and proof of identity documents to ensure that the money can be paid quickly.

While we understand the eligibility rules for SMSF members will be the same as for members of non-SMSFs, separate arrangements are being made and there may be a different process to follow when moneys are to be released from an SMSF. Further guidance on the application process for SMSF members is to be made available on the ATO website in due course.

You will be able to apply for early release of your superannuation from mid-April 2020.

How can we help?

Please contact your Nexia Advisor if you need assistance with understanding any of these recent announcements.

 

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