Two such measures relating to superannuation were announced on Sunday 22nd March, and touch each end of the economic spectrum. These announcements have now been legislated.
Minimum Pension Withdrawals
Firstly, for those in the retirement phase of life, and seeking to maximize their retirement savings, the Government announced that it will temporarily reduce the minimum withdrawal requirements for account based and similar pensions by 50% for the 2020 and 2021 financial years.
This will ensure that retirees have an option to maximize the amount of cash that is retained within their superannuation account, and may assist them to avoid the need to sell assets that have experienced a significant decline in value as a result of Covid-19. This will give these retirees the chance to weather the storm until an economic recovery occurs.
This reduction results in the following minimum drawdown rates:
|Age||Default Minimum Drawdown rates||Reduced Rates (50%) for the 2019-20 and 2020-21 income years|
|95 or more||14%||7%|
Unfortunately, in cases where you have already drawn out more than the new minimum, these announcements do not include any provision for the excess to be returned to the fund. Any monies that are deposited back into superannuation would be subject to normal contribution rules/caps.
It should also be noted that the reductions only apply to account-based, allocated and market-linked pensions (and similar annuities). Recipients of complying pensions are not able to take advantage of this measure.
Early Release of Superannuation
The second measure announced by the Government applies to those in the pre-retirement stages of life and provides an opportunity to obtain an early release of your superannuation if you are experiencing difficulties as a result of Covid-19.
In normal circumstances, access to superannuation is generally restricted until your retirement. In limited circumstances, early access is possible where specific criteria can be met – generally under financial hardship and/or compassionate grounds. These criteria have been expanded to include the impact of Covid-19.
Eligible individuals will be able to apply online through myGov to access up to $10,000 prior to 1 July 2020. They will also be able to access a further $10,000 from 1 July 2020 for approximately 3 months (exact timing yet to be confirmed).
To apply for early release you must satisfy one or more of the following requirements:
- you are unemployed; or
- you 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.
Individuals will be limited to making one early release application per financial year.
Any amounts withdrawn from superannuation under these provisions will not be required to pay tax on the amounts and the money they withdraw will not be included in Centrelink or Veterans’ Affairs assessments.
How to Apply
If you are eligible for this new ground of early release, you can apply directly to the ATO through the myGov.
You will need to certify that you meet the above eligibility criteria. After the ATO has processed your application, they will issue you with a determination. The ATO will also provide a copy of this determination to your superannuation fund, which will authorise them to release your superannuation payment.
Early release can have long term consequences to your retirement savings and the decision should not be made lightly. Our wealth advisers can assist you in any decisions that you are making in respect of whether you should obtaining an early release of superannuation.