The government has announced it will make major changes to superannuation in its second stimulus package in response to the coronavirus pandemic.
To consolidate a lot of the information out there, we’ll take you through the 3 relief measures, focusing on what SMSF trustees should be doing in a market downturn as well as discuss the benefits of wealth management advice.
1. Early access to superannuation for struggling individuals
The Federal Government is allowing individuals affected by the coronavirus to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21. While superannuation helps people save for retirement, the government recognises that for those significantly financially affected by COVID-19, accessing some of their superannuation today may outweigh the benefits of maintaining those savings until retirement.
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 for approximately 3 months (exact timing will depend on the passage of the relevant legislation).
Who is eligible for early access to superannuation?
To apply for early release of your superannuation, you must satisfy anyone 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 any amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.
How to apply for early superannuation release
From mid-April, eligible individuals will be able to apply through the myGov website 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. 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 advise them to release your superannuation payment.
Your fund will then make the payment to you, without you needing to apply to them directly. However, to ensure you receive your payment as soon as possible, you should contact your fund to check that they have your correct details, including your current bank account details and proof of identity documents.
Warning from Industry Super Australia (ISA)
ISA has released commentary on people only taking money out of super as a last resort:
“For some members, their short-term financial survival might rely on the ability to access the up to $20,000 from super that the scheme allows,” ISA said. “But accessing superannuation early should be approached with extreme caution and only as a last resort.”
ISA said its analysis shows that a 20-year-old who accesses the full $20,000 available under the scheme could lose more than $120,000 from their retirement balance; a 30-year-old who accesses $20,000 from super now could lose about $100,000 when they hit retirement; and a 40-year-old could lose more than $63,000. It may well be worth considering other options.
Here are a couple of examples from the Australian Government's Economic Response to the Coronavirus Fact Sheet:
2. Support for retirees through reduced pension minimums
The Federal Government is helping retirees to manage the impact of the current volatility by temporarily reducing superannuation minimum drawdown requirements for account-based pensions and similar products by 50 per cent for the 2019-20 and 2020-21 income years.
This measure will benefit retirees with account-based pensions and similar products by reducing the need to sell investment assets to fund minimum drawdown requirements. The reduction applies for the 2019-20 and 2020-21 income years.
Here is an example from the Australian Government's Economic Response to the Coronavirus Fact Sheet:
3. Reducing social security deeming rates for income support recipients
As of 1 May 2020, the upper deeming rate will be 2.25 percent and the lower deeming rate will be 0.25 percent. These reductions reflect the low interest rate environment and its impact on the income from savings.
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. This measure is expected to have a cost of $876 million over the forward estimates.
Here are a couple of examples from the Australian Government's Economic Response to the Coronavirus Fact Sheet:
The benefits of wealth management advice for SMSFs
From the beginning of the SMSF era, there have been clear and defined benefits for those that chose an SMSF to save for their retirement.
These benefits are super powered when members take on the advice of a professional wealth management advisor who can add value in delivering proactive advice in relation to structuring and managing the investment portfolio. The benefits that follow are the ones that really make a difference in times of crisis such as the current coronavirus pandemic.
Control of your superannuation
Members of an SMSF can choose how and where their super is invested. This provides greater control over all investment decisions, especially when they have engaged an investment advisor. In times of market downturn, such as the current COVID-19 pandemic, advisors are talking to their clients and making the necessary changes to their portfolio mix to negate and protect the capital of the fund as best possible.
Consider the following example; If you are a member of an SMSF in pension phase you can choose to take cash available in the SMSF to fund your minimum pension payments. However, the real benefit is that you have control of which assets you chose to sell down in order to meet your minimum pension requirements if cash is not available. This is an important benefit especially in times of crisis when some of the fund’s growth assets may have taken a large hit on their market values. You may choose to leave your growth assets intact until they rebound and draw down on other assets.
Visibility of your superannuation
Because SMSFs have choice in their investments, there is strong visibility of the investments chosen and, as a result of this, SMSF members know exactly where their money is invested. This is different to most industry/retail funds where you may be in a balance portfolio with limited awareness of where your money is invested.
This visibility allows SMSF members and their advisors to quickly act and re-adjust portfolios to suit market conditions.
Our BlueRock SMSF clients also benefit from the fact that we use Class Super to administer their SMSFs. By linking the live data feeds, our clients can log in to our portal and see daily the movements of their SMSF investments.
How can BlueRock help you manage your superannuation?
Our view is that all SMSF members should be engaged with their financial advisor on an ongoing basis so that they can take proactive steps in times of crisis to adjust their portfolio allocations and protect their retirement savings from losses.
BlueRock can assist individuals by providing a holistic approach to SMSF management. Our SMSF Specialised Administration team can provide you with strong visibility via our live reporting platform and assist with the compliance obligation for your SMSF.
In addition to that, our BlueRock Private Wealth team can provide holistic proactive advice on your SMSF investment portfolio with a variety of options that best suit your needs and risk profile.
Need help? Talk to our Superannuation expert, George Karavias .
