The superannuation implications of the Government’s COVID-19 stimulus package
24 March 2020
The Government’s latest economic response to COVID-19 included a number of items that will directly impact the Superannuation system and retirees. These can be broken down into:
Providing support for retirees
Early access to superannuation
1. Providing support for retirees
The impact of volatility in financial markets and the associated impact on retirement savings has seen the Government introduce two measures to help support retirees.
a) Reduced minimum pension draw down for 2019-20 and 2020-21
The Government is temporarily reducing the superannuation minimum drawdown requirements for superannuation pensions by 50% for the 2019-20 and 2020-21 financial years.
This table details the new percentages compared to prior requirements:
Default minimum drawdown rates (%)
Reduced rates by 50 per cent for the 2019-20 and 2020-21 income years (%)
95 or more
Table from Australian Government “Economic Response to the Coronavirus” Fact Sheet issued 22nd March 2020.
Treasury have released the following example to assist:
Mike is a 66-year-old retiree with a superannuation account-based pension
The value of Mike’s account-based pension at 1 July 2019 was $200,000. Under current minimum drawdown requirements, Mike is required by legislation to drawdown five per cent of his account balance over the course of the 2019-20 and 2020-21 income years.
This means Mike has to drawdown $10,000 by 30 June 2020 to comply with the minimum drawdown requirements.
Following the temporary reduction in minimum drawdown requirements, Mike will now only be required to drawdown two and a half per cent of his account balance, that is, $5,000, by 30 June 2020. If Mike has already withdrawn over $5,000 for 2019-20, he is not able to put the amount above $5,000 back into his superannuation account.
On 1 July 2020 the value of Mike’s account-based pension is $180,000 (after drawdowns and investment losses). During 2020-21, Mike is required to drawdown two and a half per cent of his account balance, which is $4,500, instead of $9,000.
As a result of this change to minimum drawdown requirements, Mike is able to preserve his capital while still drawing an income from his superannuation.
b) Reduced social security deeming rates
The Government is also reducing the upper and lower social security deeming rates by a further 0.25 percentage points. This is in addition to a 0.5 percentage point reduction announced on 12 March 2020.
From 1 May 2020, the upper deeming rate will reduce to 2.25 percent and the lower deeming rate will reduce to 0.25 percent. This reduction is a direct reflection of low interest rates and the impact this has had on income from savings.
Treasury have released the following examples for assistance:
Helen is a single part-rate age pensioner
Helen receives a single part-rate Age Pension. She has $200,000 in financial assets with $175,000 held in a term deposit which returns 1.5 per cent. She has the remainder in a cash transaction account earning a negligible rate of interest.
Under the former deeming rates, Helen’s Age Pension would have been reduced by $8.50 per fortnight as her income was above the income test threshold. With the change in deeming rates Helen has less deemed income and will now be eligible for a maximum rate Age Pension.
Leslie and Brian are an age pensioner couple
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 five 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.
2. Early access to superannuation
The Government has identified that for those significantly financially impacted by the effects of COVID-19, accessing some of their superannuation balance today may outweigh the benefits of holding onto those funds for retirement.
Eligible individuals will be able to apply online through their myGov account to access up to $10,000 of their superannuation balance before 1 July 2020.
They may also be eligible to access a further $10,000 from 1 July 2020 for approximately three months - exact timing is still to be confirmed with the passage of the applicable legislation.
To be eligible for early release you must satisfy one or more of the following requirements:
You are unemployed.
You are eligible to receive a Job Seeker Payment, Youth Allowance for Job Seekers, Parenting Payment (includes single and partnered payments), Special Benefits or Farm Household Allowances.
On or after 1 January 2020:
- You were made redundant.
- Your working hours were reduced by 20% or more.
- If you are a sole trader - your business was suspended or there was a reduction in your turnover of 20% or more.
It is important to note that 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.
Treasury have released the following examples to assist:
Ed the bartender
Ed works in a popular bar in Melbourne. As a result of COVID-19, Ed has had his work hours reduced from 40 hours on average in the second half of 2019 to 20 hours per week on average in May 2020. As a result, Ed determines that his hours over the last month have reduced by more than 20 per cent compared to the average of his hours over the last six months of 2019.
Ed decides to apply for the early release of $8,000 of his superannuation in May 2020 to help pay his rent and other living expenses. Ed self-certifies that he is eligible for early release on myGov. He could have applied for up to $10,000 but chose not to. Ed cannot seek any further early release of superannuation in 2019-20 on the grounds that he has been affected by the adverse economic effects of COVID-19.
However, Ed finds after 1 July 2020 that his hours continue to be reduced by more than 20 per cent compared to the average of his hours in the last six months of 2019. Ed decides to make a second application and self-certifies through myGov that he is eligible for early release. He is able to apply again for a release of up to $10,000 of his superannuation. Ed submits a second application for the full amount of $10,000 this time.
For each application, the ATO approves Ed’s early release and notifies both him and his superannuation fund. Ed has received a total of $18,000 of his superannuation in two separate payments. He will not be taxed on this amount and is free to spend this money on anything he chooses, or save it for future expenses. He is also free to recontribute any unused amounts to his superannuation in the future (within his contribution cap).
Rachel the sole trader .
Rachel is a sole trader with a catering business. At the end of July 2020, Rachel seeks to apply for an early release from her superannuation for the 2020-21 financial year.
Due to the economic effects of COVID-19, Rachel’s turnover for July is $5,000 compared to $10,000 on average per month for the second half of 2019. Rachel therefore determines that her turnover has reduced by more than 20 per cent compared to her average turnover over the last six months of 2019.
Rachel self-certifies that she is eligible for early release and applies to have $10,000 released from her superannuation.
For more information or for any assistance accessing the support available, please reach out to your Findex adviser.
Findex has developed a Government Stimulus Health Check and free Business Wellbeing Toolkit to help businesses manage potential risks and take full advantage of eligible stimulus assistance. Book your Health Check here.
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Findex Financial Advice Pty Ltd ABN 51 060 092 631 AFSL No. 238244