Expert SMSF insights

25 Mar, 2020

Government moves on super to combat financial effects of COVID-19

By Mark Ellem

mark_ellem

On Sunday 22 March 2020, the Federal Government announced a further range of measures to help combat the financial effect of the COVID-19 global pandemic.

Included in this package were some important superannuation measures to help retirees and other individuals affected by the Coronavirus. These measures were passed by both houses on March 23.

The following provides a brief overview of the superannuation measures.

Accessing your super early

The Government is allowing individuals affected by the Coronavirus to access up to $10,000 of their superannuation in the current 2019/20 financial year and a further $10,000 in the following 2020/21 financial year. Importantly, individuals will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments. This early access measure does not replace the current early access rules for financial hardship and compassionate grounds, but is an additional compassionate ground measure.

Affected individuals will be required to apply online via their myGov account to access up to $10,000 of their superannuation before 1 July 2020. They will also be able to access a further $10,000 from 1 July 2020 for approximately three months (exact timing will depend on the passage of the relevant legislation). It is expected that applications will be able to be made from mid-April 2020.

An individual is not required to apply for the maximum $10,000, however, if they apply for a lower amount, they cannot make a second application in the same financial year for any balance up to $10,000. Consequently, when making an application for early release under this new measure careful consideration should be given to the early release application amount.

To be eligible for this early access measure an individual 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 job seekers, 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.

After the ATO has processed the application, they will issue the applicant with a determination. The ATO will also provide a copy of this determination to the applicant’s nominated superannuation fund(s), which will advise them to release the relevant superannuation amount to the member.

However, separate arrangements apply for members of SMSFs who wish to apply for early access under this new measure. Details of these separate arrangement for SMSFs were released by the ATO on 25 March 2020. The eligibility criteria is the same and eligible SMSF members can apply for early release through myGov, again from mid April.

Once the application for early release has been submitted via myGov, the ATO will assess and issue a determination, to the SMSF member, advising of eligibility to release an amount. The SMSF member can then provide the determination to the SMSF trustee (the SMSF member generally being a trustee or director of the corporate trustee) who will be authorised to make the payment.

It appears that the only variation of the early release process for SMSF members is that the ATO determination is only issued to the SMSF member, with no copy being sent to the fund trustee. This makes sense, as in most cases the SMSF member is a trustee of the SMSF or a director of the SMSF corporate trustee.

For access to the Government’s fact sheet on this new early access measure, click here.

Reduction to the minimum pension drawdown requirement

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 financial years.

The Government states that the benefit of this measure for retirees with an account based pension or similar product is that it reduces the need to sell investment assets to fund minimum draw-down requirements.

 Age at 1 July of relevant income year

Default minimum drawdown rates (%)

Reduced rates by 50% for 2019/20 & 2020/21 (%)

 Under 65

4

2

 65 – 74

5

2.5

 75 – 79

6

3

 80 – 84

7

3.5

 85 – 89

9

4.5

 90 – 94

11

5.5

 95+

14

7

Where a member has already exceeded the minimum pension requirement for the 2019/20 income year, based on the reduced minimum draw-down rate, they will not be required to make any further withdrawals for the balance of the 2019/21 income year.

However, any excess pension draw-down over the reduced minimum cannot be simply returned to the superannuation fund. Any such transfers, from a member back to the superannuation fund, must meet the contribution rules otherwise the superannuation fund trustee will be required to return them to the member within 30 days.

This measure applies to account based pensions and “similar products”. Consequently, it also applies to transition to retirement pensions and market linked pensions (otherwise known as term allocated pensions). However, for both of these pension types the maximum level is unchanged.

This means that a member with a transition to retirement pension will still be able to draw 10% of the account balance and for market linked pensions, the range on drawdown rates will be between 45% and 110% of the calculated standard annual pension level.

Those SMSF members with old legacy defined pensions will still be required to draw the required amount of pension, per their pension’s terms and conditions. Such pensions are not similar products to account based pensions and were also not part of the minimum pension reduction measures that were implemented during the GFC.

However, those SMSFs paying these types of pension will need to be aware of the potential detrimental effect of the market downturn on the solvency requirements – for more on this topic refer to our blog article “Market movement causing potential solvency issues for certain SMSFs”.

For access to the Government’s factsheet on this measure and the changes to social security deeming rates, click here.

Supporting our customers during COVID-19

SuperConcepts has implemented a Business Continuity Plan to deal with the evolving situation surrounding COVID-19. Our Business Continuity Plan framework aims to ensure:

  • The safety of our people and visitors to our office;
  • Support ongoing service levels subject to the evolving nature of the situation, and we do expect updated operational changes in response to changing information;
  • Continued discussions with the ATO to understand the impacts on this year’s lodgement program.

To read more please refer to our website and click on the Insights & Support menu and then News & media or click here.


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