Good news, the Federal Government has been rolling out a number of changes due to the economic impact of the coronavirus (COVID-19). There are three main changes within superannuation:
- Early access to superannuation;
- Halving of the minimum pension requirements; and
- A reduction of social security deeming rates.
Early Access to Superannuation
The Government has stated that it recognises that accessing some superannuation today may outweigh the benefits of maintaining those funds until retirement. This change applies to the 2019-2020 and 2020-2021 financial years only and is separate to the ‘severe financial hardship’ and ‘compassionate grounds’ provisions already in place.
If you are experiencing financial stress as a result of coronavirus, you may be eligible to access two lump sups of $10,000 each from your superannuation. The first payment must be applied for before 1 July 2020 and a second payment may be applied for between 1 July 2020 and 24 September 2020.
You can only apply for one payment per financial year.
If you withdraw less than $10,000 in one financial year, you cannot receive the balance in the following year. These payments are tax free and will not be assessable when determining entitlements to Centrelink or DVA payments.
Applications can be made from 20 April 2020 through your MyGov account. To apply for early release you must meet one of the following conditions:
- You are unemployed;
- You are eligible to receive JobSeeker payment, Youth Allowance (for job seekers), Parenting Payment, Special Benefit or Farm Household Allowance; OR
- On or after 1 January 2020 you were made redundant, your hours of work reduced by at least 20%, or if you are a sole trader, your business was suspended or your turnover reduced by at least 20%.
We strongly recommend you seek professional advice before applying, to ensure this option is in your short and long term best interests.
Halving of the minimum pension requirements
This is a temporary measure that applies to the 2019-2020 and 2020-2021 financial years. The minimum pension that must be drawn down in a financial year has been halved. Some of the thinking behind this measure is so that super fund trustees do not have to liquidate investments, particularly shares, during this significant downturn of the share markets.
|Age at 1 July 2019||Default minimum
|Reduced rate for
2019-20 and 2020-21
|95 or more||14%||7%|
If you have already received pension payments from your super fund this year that are at least equal to the new reduced minimum, then you can elect stop your pension payments for the remainder of the financial year should you wish.
Your minimum pension level for the 2020-2021 financial year is based on your pension member balance as at 1 July 2020.
Axiom Super Solutions will send revised Pension Reports to our SMSF pension clients.
Changes to Social Security Deeming Rates
In good news for Age Pensioners, from 1 May 2020 the upper deeming rate will be reduced to 2.25% and the lower deeming rate will be reduced to 0.25%.
Deeming rates are used by Centrelink for income test calculation purposes to determine eligibility for the Age Pension. Under the deeming rules you are deemed to have earned a certain rate of return on particular assets regardless of what you actually earned. Currently these deeming rates apply to account-based superannuation income streams or pensions; savings and term deposits; shares; debentures; and managed investments.
Furthermore, Centrelink also assesses your assets to determine eligibility for Age Pension and other entitlements. With many assets values reducing over the past few months (super balances, shares portfolios, property, etc), you may wish to request that Centrelink does a revaluation of your assets to determine your current entitlements. Centrelink typically revises your asset values in February and August of each year.
How can we help?
If you would like to know more about SMSFs, superannuation or retirement planning, please feel free to give Jason McLaren a call on 0418 800 363. Jason is a fully licence Financial Planner and is able to provide you with personalised financial advice through his business, Flow Financial Planning.
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The information contained in this article is general in nature and does not take into account your personal situation or objectives. You should not act on this information in any way before seeking professional advice.