Covid-19 Superannuation changes
Covid-19 Superannuation changes
The Federal Government recently announced (on 22nd March 2020) several Superannuation measures as part of its second stimulus package to assist self-funded retirees curb the economic impact Coronavirus is having on their retirement benefits as well as providing superannuation support for any individual significantly affected by the Coronavirus crisis.
These measures include:
1. Temporary reduction in pension drawdown rates
50% reduction in minimum pension drawdown rates is available for FY 2019/20 and FY 2020/21.
2. Temporary early access to Superannuation
$10,000 may be accessible by any individual who has been significantly financially impacted to ease financial pressure at this time. Available for FY 2019/20 and FY 2020/21.
3. Social Security deeming rate changes
For Pensioners in receipt of the Aged Pension, deeming rates will be lowered (by 0.25%) to reflect the current low interest rate environment and its impact on income from savings.
Temporary reduction in pension drawdown rates
For the remainder of the current income year (FY 2019/20) the Government is temporarily allowing pensioners to reduce their annual minimum pension requirement by 50%. This measure will apply to Account Based Pensions, Transition to Retirement Income Streams and other types of income streams. Please note the temporary reduction in pension drawdown requirements will also apply for the following financial year (2020/21).
The Government hopes a reduction in pension payments being made to their pensioners will reduce the need for trustees having to sell their investments (giving greater flexibility in managing superannuation assets) to be able to fund these required annual pension amounts, in light of the current market volatility caused by Coronavirus.
New temporary minimum drawdown requirements are:
Under age 65 4% to 2%
65 – 74 5% to 2.5%
75 – 79 6% to 3%
80 – 84 7% to 3.5%
85 – 89 9% to 4.5%
90 – 94 11% to 5.5%
95 or older 14% to 7%
The annual minimum pension drawdown requirement for a pensioner is based on their benefit as at 1 July of the current financial year. Where a pensioner has already withdrawn pension amounts in excess of their reduced minimum this financial year, no further pension payments are required to be made prior to 30 June 2020 (pension standards will be met); and accordingly, any excess pension cannot be returned to the Fund due to overpayment. Amounts could only be returned to the pensioner’s SMSF where they satisfy the contribution rules.
All communication sent by SMSF Works this financial year to date detailing FY 2019/20 annual pension requirements has reflected the default minimum drawdown percentages; hence these amounts may be reduced by 50%. We will be communicating and re-confirm with all Trustees pension amounts required to be paid to their Pensioners based on this temporary reduction measure.
No action is required from a pensioner/trustee in order to access these temporary pension drawdown rates; simply adjust pension payments accordingly and consider automatic electronic payments that are already in place.
Temporary early access to Superannuation
Any individual who has been significantly financially impacted by the Coronavirus outbreak will be eligible to access (albeit temporarily) a portion of their preserved superannuation benefit to ease financial pressure during this time.
Access to superannuation in the form of an early access benefit payment can be made up to a maximum limit of $10,000 for the current financial year (FY2019/20) under the compassionate grounds condition of release. For the following financial year (2020/21) $10,000 temporary early access benefit is also available, at this stage, for approximately the first 3 months only.
- You are unemployed; OR
- You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (including single and partnered payments), special benefit or farm household allowances; OR
- On or after 1 January 2020:
- You were made redundant; OR
- Your working hours were reduced by 20% or more; OR
- If you are a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.
Early access payments made to eligible individuals will be tax free (regardless of their tax free / taxable component); which is different to the current taxing provisions of compassionate ground condition of release. Any payment made to an individual will not affect their current level of Centrelink benefits and those seeking this early access payment are not required to be in receipt of Commonwealth income support before application. No waiting periods will apply for this payment to be made.
Only ONE payment will be permitted to be made by your Superannuation Fund during each Financial year of the early access superannuation benefit. A member can elect the amount (up to $10,000) to be released from their superannuation benefit; however, they need to ensure this will cover their financial requirements as any balance not withdrawn cannot be withdrawn subsequently.
It is critical that trustees follow the correct process to access this benefit – simply withdrawing an amount now will be subject to the preservation rules (which could incur tax and penalty consequences). Members seeking to access up to $10,000 under these provisions will need to first apply to the ATO (via their myGov account) and certify that all criteria is met to be able to access the early release payment. The ATO will process applications to determine eligibility for the release and will provide the member with a determination that must be provided to the trustee before this payment can be made. The ATO are currently advising that applications can be made from mid-April 2020.
Should you or a member of your SMSF satisfy the above requirements and need access to their super, please contact our dedicated team to discuss further.
Social Security deeming rate changes
Effective from 1 May 2020, deeming rates will be lowered (by 0.25%) to reflect the current low interest rate environment and its impact on income from savings. This will assist retirees in receipt of the Centrelink Aged Pension, or those who were previously ineligible, may be able to qualify for part of the Aged Pension. Upper deeming rate is reduced to 2.25%; whilst the lower deeming rate will be 0.25%.
These articles are reproduced with kind permission of SMSFWorks