Coronavirus and superannuation: what are the changes?
March 23, 2020
The Australian Government has announced various financial assistance initiatives for businesses and individuals as a result of the coronavirus (COVID-19).
There are several changes that will apply to superannuation and people that are in receipt of a superannuation or a government pension.
Here’s what you need to know:
50% decrease in minimum pension amounts
The government is allowing a temporary reduction in the minimum pension amount by 50 per cent for the 2019/20 and 2020/21 years.
This will benefit trustees by allowing them to possibly avoid selling investments to meet existing pension requirements.
The new minimum pension limits for 2019/20 and 2020/21 will be as follows:
|Age||New minimum % (50% reduction)||Old minimum %|
Mike is 66 years old and had $1,000,000 in pension mode as of 1 July 2019. His minimum pension limit was $50,000 (at 5 per cent) initially for the 2019/20 financial year.
As a result of the change, his minimum pension is reduced by 50 per cent for the 2019/20 and 2020/21 financial years. Under the new arrangement, his minimum pension for 2019/20 is $25,000 (at 2.5 per cent).
If Mike had already taken out $50,000 in the 2019/20 financial year, he is not allowed to put the excess amount back into superannuation. If he met the contribution rules, he could make further contributions.
Changes to social security deeming rates
The government is reducing the social security deeming rates from May 1, 2020 to an upper deeming rate of 2.25 per cent and a lower deeming rate of 0.25 per cent.
This reflects the low interest rate environment and is expected to allow approximately 565,000 pensioners an entitlement to a greater government pension.
Early release of superannuation
From the middle of April 2020, individuals that have been impacted by the coronavirus will be allowed to access up to $10,000 in superannuation in each of the 2019/20 and 2020/21 financial years.
There will be no tax payable on the amount taken from superannuation and the money taken will not affect Centrelink benefits.
Applicants can apply for the $10,000 per year online through the myGov website. The 2020/21 amount is expected to only be available until September 30, 2020.
To be eligible for the early access you must satisfy one of the following requirements:
- you are unemployed, or
- your working hours have been reduced by 20 per cent or more, or
- if you are a sole trader and your business is suspended or there has been a reduction in your turnover by 20 per cent or more.
The application for the early release of superannuation will be via the myGov website and the ATO will issue you a determination that they will also provide to your superannuation fund.
Your fund can then make the payment to you. How this arrangement will work with self-managed superannuation funds has not yet been released.
Speak to the superannuation experts
The government’s financial measures to address COVID-19 continue to evolve, so it’s important that you speak with a superannuation expert before making any changes.
The team at LDB can assist with your pension minimum requirements, applying for government pensions, or applying for early access to your superannuation.
If you would like us to discuss the government’s superannuation changes as a result of the coronavirus, give us a call on (03) 9875 2900 or fill in the form below.