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Government Stimulus Stage 2 - Early Release of Super

The Federal Government released Stage 2 of its Stimulus Package this week and the measures have now been passed into law.

 

In particular, two superannuation concessions have been announced, to assist individuals which have been financially impacted by COVID-19, including: 

  • Introducing a new concession to expand the circumstances where an individual can access their superannuation early; and
  • Temporarily reducing the superannuation minimum drawdown amounts for account-based pensions.

Early access to superannuation benefits

Under the existing "compassionate grounds" conditions of release, an individual can access their preserved superannuation benefits (as a lump sum), subject to any cashing restrictions, on a number of different (specific) grounds where certain conditions are satisfied.

 

For example, an individual who satisfies certain conditions could access their superannuation entitlements under this condition of release in order to pay for certain medical treatment, or to enable the individual to make a repayment on a home loan in order to prevent the mortgagee selling their home.


The Government has introduced a new "compassionate ground" of release that will allow individuals to access their superannuation entitlements where those benefits are required to assist them to deal with the adverse economic effects of the Coronavirus, but only where one or more of the following requirements are satisfied:

  • The individual is unemployed
  • The individual is eligible to receive the Jobseeker Payment, Youth Allowance for jobseekers, Parenting Payment (which includes the single and partnered payments), Special Benefit or Farm Household Allowance.
  • On or after 1 January 2020:
  • the individual was made redundant; or
  • the individual's working hours were reduced by at least 20%; or
  • if the individual is a sole trader – their business was suspended or there was a reduction in the business's turnover of at least 20%.


Under this new "compassionate ground" of release, eligible individuals will be able to access a lump sum amount of their superannuation entitlements:

  • up to $10,000 before 1 July 2020, and
  • a further $10,000 from 1 July 2020 (but subject to the six-month time frame explained below).

Eligible individuals who are looking to access their superannuation entitlements under this new ground of release will be able to apply directly to the ATO through the myGov website (at www.my.gov.au) and verify that one or more of the eligibility criteria (above) are satisfied.

An individual will be able to apply from mid April 2020 for early release of their superannuation entitlements.  

 

However, we must note that no application may be made after the end of the period of six months from the day on which the new compassionate ground of release commences.

 

Under this new compassionate ground of release, any lump sum superannuation withdrawals will not be taxable to the recipient (ie. they will be tax-free).  Also, the Government has stated that any lump sum amount withdrawn will not affect Centrelink or Veteran's Affairs payments.

Reducing the minimum drawdown amounts for superannuation pensions

The Government will be temporarily reducing the superannuation minimum drawdown amounts for account-based pensions and similar products by 50% for the 2020 and 2021 income years.

 

This basically means that the total minimum annual pension amount that a superannuation fund is otherwise required to pay to a member receiving a pension from the fund (ie. an account-based pension) will be reduced by half for these two income years.

 

Under these superannuation rules, the total minimum pension amount that a superannuation fund is required to pay to a fund member receiving a pension (such as an account-based pension) from the fund in an income year is generally calculated by: multiplying the member's pension account balance at the beginning of the year, by the relevant drawdown percentage

.


The current minimum drawdown percentages, together with the reductions for the 2020 and 2021 income years, are outlined in the following table.

 

Recipient's age

 

Current minimum drawdown

 

Reduced drawdown for 2020 and 2021 income years

 

Under 65

4%

2%

65 to 74

5%

2.5%

75 to 79

6%

3%

80 to 84

7%

3.5%

85 to 89

9%

4.5%

90 to 94

11%

5.5%

95 and above

14%

7%

 



Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.