COVID-19: Superannuation measures

Over the past few weeks, the Government has announced numerous measures to support the economy during the COVID-19 crisis.  A number of those measures specifically relate to the superannuation industry.

 

Temporarily reduce superannuation minimum drawdown rates

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. This measure will benefit retirees by providing them with more flexibility as to how they manage their superannuation assets. Retirees will be under less pressure to sell shares or other pension assets in a falling market to meet the minimum payments they are required to withdraw each financial year.

 

Individuals who have already taken more than their new minimum pension amount for the 2019/20 financial year will not able to return excess pension payments to their superannuation account under these changes.

 

Early release of superannuation

While superannuation helps people save for retirement, the Government recognises that for those significantly financially affected by the Coronavirus, accessing some of their superannuation today may outweigh the benefits of maintaining those savings until retirement.

From 20 April 2020, eligible individuals will be able to apply online through myGov to access up to $10,000 of their superannuation before 1 July 2020. They will also be able to access up to a further $10,000 from 1 July 2020 until 24 September 2020.

To apply for early release you 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 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 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.

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.

If you are eligible for this new round of early release, you can apply directly to the ATO through the myGov website: https://my.gov.au/.  Applications will be accepted from 20 April 2020.

For members of superannuation funds other than a self-managed superannuation fund (SMSF), the ATO will issue a determination to the relevant superannuation fund, who will then release the amount to the member.  For SMSFs, the ATO will issue a determination to the member, who will then be able to withdraw the amount from their fund.  It is very important that an SMSF member does not withdraw the amount until the ATO has issued the relevant determination.

While this provides an additional safety net for individuals and families who face the loss of a job or a significant fall in income, we do urge our clients to consider accessing their super as a last resort.

Taking a chunk out of your retirement savings now, after a big market fall, would not only crystallise your recent losses but it also means you would have less money working for you when markets recover.

So, before you do anything, speak to us and look at other income support measures.

 

Reducing social security deeming rates

Deeming rates are the amount the Government ‘deems’ pensioners earn on their investments to determine eligibility for the Age Pension and other entitlements, even if that rate is lower than they actually earn.

As of 1 May 2020, the upper deeming rate will be 2.25 per cent and the lower deeming rate will be 0.25 per cent. This move will bring deeming rates closer in line with the interest rates pensioners are receiving on their bank deposits, especially those with lower balances.

The change will benefit around 900,000 income support recipients, including around 565,000 people on the Age Pension who will, on average, receive around $105 more from the Age Pension in the first full year that the reduced rates apply.

The changes will be effective from 1 May 2020.

 

Reductions in rent between SMSFs and related parties

As the economic impacts of the Government’s response to the COVID-19 crisis have increased, many in the superannuation industry have questioned whether it is possible to temporarily reduce or suspend the rent payable from a related party tenant to a SMSF.

A reduction in rent in these circumstances gives rise to a number of potential compliance issues for SMSF trustees, including:

  • The requirement that transactions between related parties must be on arm’s length (commercial) terms;
  • The requirement that trustees must not provide financial assistance to a member or relative; and
  • A fund must be operated for the “sole purpose “of providing retirement benefits for members (and financial accommodation to a related party may breach this requirement).

As it is clear that rent concessions are being granted between non-related parties in these extraordinary times, a rent concession between related parties may also be justified.

Against this background, the Taxation Office has recently indicated that it will not take any action where an SMSF provides a related party tenant a legitimate temporary rent reduction during 2019/20 and 2020/21.  However, it is likely that auditors will be required to report any rent reductions to the Taxation Office, although the exact parameters of what may need to be reported are still being determined.

The nature of any rent concession will depend on the circumstances.  There could be, for example:

  • a temporary rent free period with a requirement to pay arrears when business conditions improve;
  • a temporary rent free period with no requirement to pay arrears; or
  • a temporary reduction in rent, in line with the fall in turnover of the business.

In order to ensure that any rent concession is able to be substantiated, we believe trustees should obtain a written opinion from a real estate agent on the current market conditions, and approaches to rent relief taken by landlords in similar circumstances.

 

For more information, please get in touch with our team on 1300 363 866.

 

 

McConachie Stedman Financial Planning is an Authorised Representative of Wealth Management Matters Pty Ltd ABN 34 612 767 807 | AFSL 491619