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Archives for April 2020

Support Measures – COVID-19

Given the escalating numbers of COVID-19 cases in Australia, we have had to change our lifestyle very quickly to incorporate social distancing and more recently put up with state-wide lockdowns. The government has made a series of announcements on the 22nd of March 2020 which are designed to provide support to people impacted by the virus.

The new measures announced are predominantly in the area of Superannuation legislation and social security.

Summary of these measures;

  • Reduction in minimum pension
  • Early access to super benefits
  • Reduction in social security deeming rates for the incomes test

Reduction in minimum pension

Across the board, minimum pension drawdown rates for market linked income streams are reduced by 50% for the 2019/20 and 2020/21 financial years. The aim of this measure is to support retirees who are not required to draw the current pension minimums and can reduce pension drawdowns to avoid selling investments in a depressed market.

This will not affect you if you need the current minimums to survive, already drawing above the minimum pension or currently drawing an income from a complying lifestyle pension.

Early Access to super benefits

Access to superannuation benefits will be opened up from mid-April. The temporary access allows affected individuals to access up to $10,000 in each of the 2019/20 and 2020/21 financial years for a maximum of $20,000 of tax-free superannuation withdrawals.

You must meet the following criteria’s to qualify;

  • You are unemployed
  • You are eligible to receive a JobSeeker Payment, Youth Allowance for job seekers, Parenting Payment, Special Benefit or Farm Household Allowance
  • On or after 1st of January 2020, you were made redundant or your working hours were reduced by 20% or more or if your businesses was suspended as a sole trader.

This is designed to be a last resort for those with no other means of attaining funds to meet their current living expenses.

However, this could be a huge trap for those who utilise the withdrawals by meeting the above conditions but do not actually require the funds. Younger Australians in the early stages of building their super could be most at risk, as they could take funds out of super just for the sake of security. Given the power of compound interest, removing $20,000 from a super fund 20 or 30 years prior to retirement access could have a devastating impact on their final retirement balance.

Reduced social security deeming rates

A direct loosening to Centrelink’s income test, whereby the upper and lower social security deeming rates will be reduced from 1st of July 2020 to 0.25% up to the threshold and 2.25% above the threshold. This is an overall reduction of 0.75% from the default 1% up to the threshold and 3% above the threshold.

An individual with $550,000 in financial assets on the default deeming rates of 1% and 3% will have their age pension reduced by $65 each per fortnight. Under the new transitional deeming rates, their pensions will only be reduced by $32 per fortnight. The key to consider is that deeming is only a part of the incomes derived by the client, which is dependent on the level of financial/investable assets and the loosening of the deeming rates will not help if your prevailing test is the Assets test.

Further measures are set to be announced in the coming weeks, however, it seems as though these initial changes will provide relief to those who are impacted.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Changes to Superannuation due to COVID-19

Well…who saw that coming!!

Just when you think you’ve seen it all, how quickly things can turn from chocolates to boiled lollies…

For the golfers out there, spring in the northern hemisphere gets us fired up for the 1st major of the year, the Masters Tournament played at the mighty Augusta National Golf Club in Georgia. Sadly, the Masters won’t be played in April…it may get a run later in the year, however, it won’t be the same.

The speed at which equity markets dropped from peak to trough in about 4 weeks brings to mind how quickly damage has been inflicted over the years to some of the finest golfers in the world on the 140 metre, par 3, 12th hole at Augusta National, known as “Golden Bell”…the middle of “Amen Corner”.

Many have arrived at “Golden Bell” on the final round on Sunday appearing to be in total command of their game and on path to secure that highly sought after ‘green jacket’ when from nowhere, Raes Creek comes to life and mysteriously drowns those green jacket aspirations before the poor sod can catch his breath and ask his caddie; “what happened there?”

This year, COVID-19 has done to the world what Raes Creek would surely have been doing to some unsuspecting golfer or two had the Masters been on track.  Just as those golfers must dust themselves off and ‘get back on the horse’, we must play the hand of cards COVID-19 has dealt us whether we like it or not.

In relation to superannuation, COVID-19 has necessitated the following changes to assist with the financial consequences it has brought.

Early release of superannuation

Individuals in ‘financial stress’ can access their superannuation savings (i.e.; accumulation mode accounts) up to a cap of $10K in 2019-20 and again in 2020-21, from 1 July 2020 to 24 September 2020.

To qualify for this:

  • You must be unemployed.
  • You must be eligible to receive a jobseeker payment, youth allowance for jobseekers, parenting payment, special benefit or the farm household allowance.
  • On or after 1 January you were; made redundant, or your working hours were reduced by at least 20% or if you were a sole trader, your business was suspended or turnover reduced by 20%.

If someone is considering this option, attention needs to be given to how the withdrawal might impact personal risk protection insurance held inside their super such as; income protection, life, and total permanent disability cover.

Reducing the minimum amount required to be withdrawn in pension mode

The government has announced a temporary 50% reduction in the amount a superannuant is required to withdraw from account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities for the 2019-20 and 2020-21 financial years.

This initiative is designed to avoid investments being sold down at the worst possible time to meet annual minimum withdrawal requirements and thus increasing longevity risk i.e.; the risk of running out of money.

To promote the longevity of your retirement savings, revisit or complete a budget for your living costs.  The amount you need to pull out of super to fund your lifestyle will drop out naturally which can then form the base for your pension withdrawal.  Additional or ‘one-off’ withdrawals can always be taken as and if needed.

If there’s a positive out of this we should be spending less because we can’t damn well do anything or go anywhere and the minimum required to be withdrawn in 2020-21 should be reset lower due to depressed asset prices.

Isolation might be a good time to dust of the playing cards for a good old-fashioned game of ‘patience’…or perhaps 500, which would be my preference…but restricted to a group of 4 of course.

Stay COVID-19 free out there and see you on the other side of COVID-19.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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