Combined with previous actions, the government has announced the second round of measures as part of its economic response to the coronavirus. Changes to superannuation were revealed, to make it easier for struggling Australians to access their funds. This includes a range of measures that have a direct impact on superannuation, which includes the following:
1. Temporary early release of superannuation
Eligible individuals financially affected by COVID-19 will be allowed to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21 available for 3 months, being the later of 30 September 2020 or the timing of legislation being passed. You will be able to apply for early release of your superannuation from mid-April 2020.
To be eligible to apply for early release of super, they must satisfy one or more of the following requirements:
- They are unemployed; or
- They 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% 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.
Eligible individuals that can access their superannuation will receive these payments tax-free, that they will be treated as non-assessable, non-exempt income (NANE). This appears to be regardless of the proportion of taxable and tax-free components of an individual’s superannuation interests which must be paid proportionately as a lump sum. Any withdrawals will not affect Centrelink or Veterans’ Affairs payments.
How to apply
You can apply directly to the ATO by completing an online application through the myGov website, www.my.gov.au. You will need to certify that the above eligibility requirements are met. Once the ATO has processed the application, they will issue the individual with a determination, along with providing a copy to the super fund for the release of the super payment from the member’s account. The fund will make the payment directly to the individual – no further application needs to be made to the super fund by the member.
A different set of arrangements will apply for members of a SMSF, which will be made available shortly on the ATO’s website
2. Temporary drawdown reduction for pensions
The Government is helping retirees to manage the impact of volatility in financial markets on their retirement savings by temporarily reducing the minimum pension drawdown on super income streams for account-based pensions and similar products (e.g. Allocated Pensions, Market Linked Pensions).
The measure will benefit retirees by reducing the need of potentially having to sell investments to fund their minimum drawdown requirements.
The reduction applies for the 2019-20 and 2020-21 income years.
The table below outlines the reduced minimum percentages that will apply:
Key considerations in making pension withdrawals for both the 2019-20 and 2020-21 income years:
- If the member has already drawn down an amount equal to or greater than the reduced minimum amount, they are not required to take any further benefit payments before 30 June – i.e. they can stop monthly withdrawals if they want / need
- Any excess that the member has withdrawn above the reduced minimum cannot be credited back into the member’s account – this amount is simply above their (reduced) minimum pension for the year. Any such amount would need to meet the contribution rules (both eligibility and acceptance) to have such amounts credited back to the member.
- Subject to the pension drawdown requirements of a member for the income year, it may be optimal for amounts above the minimum to be treated as either:
- amounts from the member’s accumulation account where it may exist due to the introduction of the transfer balance cap – this will improve a fund’s earning tax exemption for this income year and subsequent years.
- a partial commutation lump sum, rather than as a pension payment as this would create a debit against their transfer balance account. You will need to consider the timing of TBAR lodgement obligations for the fund, based upon it being a quarterly or annual reporter for these events.
3. Changes to the social security deeming rates
The Government is reducing social security deeming rates in recognition of the impact of the low interest rates on savings. A further reduction in both the upper and lower social security deeming rates by 0.25%, which is in addition to the 0.5% reduction to both rates announced on 12 March 2020 has been decided.
As of 1 May 2020, the upper deeming rate will be 2.25% and the lower deeming rate will be 0.25%. 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.
You can refer to the Economic Response to the Coronavirus page on the Treasury website for further information.