Help for retirees and super investors

The Federal Government announced three initiatives over the weekend to ease the financial impact of the Coronavirus on retirees, investors and superannuants. These are:

1. Super drawdowns halved.

2. Deeming rates cut by 0.75%.

3. Early access to super.

Details of these initiatives are set out below, plus some comments about the application of the transfer balance cap. Please note that these changes are currently proposed, not legislated, and may change before they are enacted.

1. Super drawdowns halved

The requirement to drawdown funds from an account based pension is being halved during this financial year and the next. The rates, which vary with age, will be as follows:

If the value of your account based pension was (say) $1,000,000 on 1/7/19 and you were 66 years old, under the old rules, you were required to withdraw at least 5% or $50,000 from your pension. Under the temporary rules announced on Sunday, the minimum withdrawal will be $25,000 in 19/20 and another 2.5% in FY21.

Minimum withdrawals are based on the account balance and age as at 1 July 2019. If you commence a pension during the year, the minimum withdrawal is pro-rated (e.g. if you start a pension on 1 March, it is one third of the amount).

If you have already taken out more than the new minimum amount for this financial year, you won’t be allowed to put it back into your superannuation account (unless you are eligible to make a super contribution).

2. Deeming rates cut by 0.75% 

From 1 May, the deeming rates that are used to assess investment income in relation to eligibility for a government aged pension will be cut in total by 0.75%. The further reduction of 0.25% announced on Sunday follows a reduction of 0.5% announced on 12 March.

For a single, the new deeming rates will be 0.25% on income up to $51,800, then 2.25% on income over the threshold. For a couple, a rate of 0.25% will apply to the first $86,200 of investment income, and then 2.25% on income above this level.

Deeming rates are applied to investment assets such as superannuation account balances, term deposits and shares.

3. Early access to super

Individuals affected by the Coronavirus will be able to access early $10,000 of their superannuation in 2019/20 and a further $10,000 in 20/21.

To be eligible, you will need to satisfy one of the following requirements:

• Unemployed;

• Eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment, 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.

To access your super, you will need to apply online through myGov before 1 July 2020 . To access a further $10,000 in 20/21, access will be open for approximately 3 months.

There will be no tax payable on amounts withdrawn and it will not affect Centrelink or Veterans Affairs payments.

Transfer Balance Cap

The transfer balance cap is a life-time limit on how much money you can transfer into the pension (tax free) phase of super. It is currently set at $1,600,000.

With the fall in the local and overseas share markets, the value of most super accounts has decreased. This means that some superannuants who were previously over the cap could now be under the cap. With the halving of the minimum withdrawal, a move into the pension phase could now be attractive.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.