The Federal Government announced a second stimulus package of $66 billion on 22 March 2020 to keep Australians employed as the economy takes a hit from the spread of coronavirus. This follows the first stage $17.6 billion economic stimulus package announced on 13 March 2020.
Notably for superannuation funds, the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) includes provisions allowing for:
- a limited early release of superannuation benefits for financial stress; and
- a temporary reduction in pension minimum drawdown rates.
Enabling early release of superannuation
The Act adds to the definition of compassionate grounds for the release of part of a super benefit to include assistance to deal with the adverse economic effects of COVID-19 if the person is:
- eligible to receive certain social security payments, such as the jobseeker payment, certain youth allowance payments, the special benefit or farm household allowance; or
- on or after 1 January 2020:
- the person was made redundant; or
- their working hours were reduced by 20 per cent or more; or
- if they are a sole trader, the business was suspended or there was a reduction in the business’ turnover of 20 per cent or more.
Two applications for the release of a lump sum, each of which is up to $10,000, can be made in this 2020 financial year and in the 2021 financial year. However, applications can only be made in the six-month window after the legislation was passed. The payment is tax free.
The application will be determined by the ATO, which will notify the trustee and the applicant of the decision.
The legislation also provides that the trustee must pay the member as soon as practicable after receiving the ATO’s determination, without requiring any further application from the member.
Administering and processing applications for early release will be an additional challenge for an already stretched regulator. We understand that individuals will be required to apply online to the ATO using myGov, and that the processes for the ATO to receive applications and issue the necessary determinations are still being developed.
Trustees should anticipate any liquidity management issues, and have regard to their liquidity management plan and the legislation. They should also consider how to communicate the availability of these benefits to members, and ensure that their trust deeds do not impede making these payments.
Announcements are yet to be made about the process for claiming early release of benefits from self-managed superannuation funds.
Please call us if we can help you.
Pension minimum drawdown rates
Under regulations, account-based pension holders are required to drawdown a minimum payment from their account each year. The minimum is calculated as a percentage of the account balance, and based on the pensioner’s age. Under the stimulus package, these minimum annual payments are halved for each of the 2020 and 2021 financial years.
This measure gives pensioners better flexibility in relation to actions which may crystallise losses or require assets to be redeemed during the market downturn. This measure will mean that certain disclosures ought to be updated, and the issue of a significant event notice considered.
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