Retirement Income

COVID-19 Stimulus

10 min read


30 Mar, 2020

In response to the current COVID-19 pandemic and its impact on the Australian economy, the Government has announced a number of stimulus packages which have now been made law. So, what do you need to know for your retiree and pre-retiree clients?

This article is for financial advisers. If you’re a retiree, you can read an overview of what the stimulus packages mean for you here.

Updated 30 March 2020 to include Appendix C, providing details of the Government's announced (but not yet legislated) introduction of the JobKeeper Payment and changes to the Income Support partner pay income test.

1. Deeming rates reduce again

It was announced on 12 March 2020 that deeming rates would reduce from 3%/1% to 2.5%/0.5%. However, the Government announced on 22 March 2020 a further 0.25% reduction to the deeming rates which will become effective on 1 May 2020.


Table 1: Deeming rates and thresholds from 1 May 2020

Single

Rate

Couple

First $51,800

0.25%

First $86,200

Over $51,800

2.25%

Over $86,200


The government has stated that 565,000 Age Pensioners will be affected, receiving an average increase of $105 in first year after the change.

Importantly for advisers, this means the ‘income and asset test zones’ have changed significantly. These zones provide a quick guide for which test a client might be assessed under by considering only deemed financial assets.

Figure 1: Age Pension income and assets test strategy zones from 1 May 2020

Strategy Zones 1 May 2020

Interestingly, there is now no income zone for couple homeowners and a much-reduced income zone for single homeowners. For homeowner part-pensioner clients, asset reducing strategies are likely to be more appropriate.

However, for non-homeowners, the income test zones and still significant. The new deeming rates will reduce assessable income for short-term annuities, such as the Challenger Guaranteed Annuity, which are five years or less (unless greater than life expectancy), Challenger Guaranteed Allocation Pensions which are not grandfathered and Challenger Guaranteed Personal Superannuation for someone Age Pension age or over.

It may be worthwhile to consider if clients with grandfathered account-based pensions (ABPs) might now benefit from a deemed ABP instead, given lower deeming rates and potentially lower balances, which combined could mean significantly less deemed income than previously. However, consider your clients’ needs in future and how their income payments might also change, given the following measure.

2. Reduction in super income stream minimum payment amounts

An immediate reduction to super minimums for account-based pensions now applies, halving the previous rates.

Table 2: Account-based pension minimum payments for 2019/20 and 2020/21


Age on 1 July

Minimum drawdown % of 1 July account balance

Under 65

2%

65-74

2.5%

75-79

3%

80-84

3.5%

85-89

4.5%

90-94

5.5%

95+

7%


If clients have already drawn down their super minimum for the financial year, they can stop payments for the rest of the financial year. Clients should contact their fund to organise this. Any excess payments already paid above the super minimum amounts cannot be refunded back into super.

The Challenger Guaranteed Allocation Pension can benefit from these new super minimums. New clients can utilise the new super minimum rates immediately. Existing clients in the cash option can reduce their minimum payment immediately, whilst clients in a fixed rate option can reduce their payment upon maturity.

Term annuities and lifetime annuities, such as the Challenger Guaranteed Annuity and Challenger Guaranteed Annuity (Liquid Lifetime), are not affected by this measure. However, for Liquid Lifetime annuities commencing today, the Flexible Income (Immediate payments) option and the Flexible Income (Deferred payments) option are both innovative super income streams, which means that super minimum payments do not apply anyway.


3. ‘2020 economic support payments’ for income support recipients and concession card holders

There will be two payments of $750 to income support recipients and concession card holders that have different eligibility. Each individual client can only receive each $750 payment once, even if they are personally eligible for multiple income support payments or concession cards.

First 2020 economic support payment

For this first payment of $750, clients are eligible if on at least one day during the period from 12 March 2020 to 13 April 2020 they:

  • are residing in Australia, and
  • either:
    • receive an eligible payment including Age Pension, Disability Support Pension, Carer Payment, Carer Allowance, Newstart Allowance, DVA Service Pension, DVA War Widows Pension, or one of the many other payments listed in Appendix A; or
    • receive the Commonwealth Seniors Health Card (CSHC); or
    • receive the Pensioner Concession Card (PCC) (including non-means tested PCCs due to the assets test changes on 1 January 2017); or
    • receive the DVA gold card.

The First 2020 economic support payment will begin to be paid from 31 March 2020, with Centrelink/DVA expecting 90% of payments to be made by mid-April.

Second 2020 economic support payment

For this second payment of $750, the eligibility is the same for clients, except:

  • the relevant date for which clients need to be in receipt of an eligible payment/ concession card receipt is 10 July 2020; and
  • it is not available for those who receive the COVID-19 supplement (see relevant payments list in next section).

The Second 2020 economic support payment will begin to be paid from 13 July 2020.

4. COVID-19 supplement and relaxed eligibility for relevant payments

A supplement of $550 per fortnight will commence from 27 April 2020 and continue for a six-month period (which may be extended by the Government), for recipients of a:

  • Jobseeker Payment (and all payments progressively transitioning to JobSeeker Payment; those currently receiving Partner Allowance, Widow Allowance, Sickness Allowance and Wife Pension)
  • Youth Allowance for job seekers
    • Youth Allowance for students and apprentices
    • Austudy for students and apprentices
    • ABSTUDY for students getting Living Allowance
  • Parenting Payment (Partnered and Single)
  • Farm Household Allowance
  • Special Benefit

The government is also making some of these payments more accessible. Recipients of the Jobseeker Payment or Youth Allowance (which includes new and existing recipients) and Parenting Payment are also exempt from the assets test, liquid assets waiting period, ordinary waiting period, newly arrived resident’s waiting period and seasonal worker preclusion periods. The exemption from the newly arrived resident’s waiting period also applies to special benefit.

Note, the Income Maintenance Period (IMP) and Compensation Preclusion Periods will still apply.

The Government is also temporarily lifting all mutual obligation requirements for jobseekers until 31 March 2020 (may be extended if www.my.gov.au website congestion continues) and has made changes to some mutual obligation requirements given the shift away from face-to-face contact.

5. Temporary early access to superannuation

Pre-retiree clients will be able to apply to the ATO to receive up to $10,000 from their superannuation in the financial year 2019/20 and again in 2020/21 if they meet certain eligibility. Clients will only have until 24 September 2020 to make an application to the ATO under this condition of release for 2020/21.

To meet eligibility for this condition of release clients must meet one or more of the following:

  • If at the time of application they are:
    • unemployed; or
    • eligible to receive one of the following payments:
      • Jobseeker Payment
      • Youth Allowance for job seekers
      • Parenting Payment (single or partnered)
      • Special Benefit Farm Household Allowance; or
  • On or after 1 January 2020, they:
    • were made redundant; or
    • had their working hours reduced by 20 per cent or more (including to zero); or
    • if they are a sole trader, their business was suspended or there was a reduction in their turnover of 20% or more.

The requirements about reductions in a person’s working hours or in their turnover as a sole trader will be determined by comparison between hours/turnover before 1 January 2020 and hours/turnover at the time of application. No specific method has been determined, however, a suggestion could be for clients to have documents ready to prove this.

Clients in the Challenger Guaranteed Personal Super may be eligible for this new condition of release. To gain access, they will be able to apply to the ATO via www.my.gov.au from mid-April. If their application is successful, your client will receive a determination from the ATO which they can provide to their super fund. Separate arrangements will apply if your client has an SMSF, which will be made available on the ATO website in due course.

The super lump sum benefit under this condition of release:

  • will not be subject to tax; and
  • will not affect Centrelink or DVA payments (although will be counted as an asset and deemed for income if not spent and kept in cash); and
  • can only be used once per financial year.

(For example, a client cannot take two withdrawals of $5,000 in financial year 2019/20, but must make one withdrawal of up to $10,000).

Note, clients may also be eligible for other existing conditions of release such as financial hardship or compassionate grounds.

6. Other measures

  • The Intergenerational Report, which provides demographic and population projections over a 40-year period and is useful for understanding the growth in retirement and aged care, has been deferred from 2020 until mid-2021.
  • Medicare Levy and Medicare Levy Surcharge indexed thresholds for 2019/20 were released.
  • Small business measures include (amongst others):
    • Small business entities can claim an immediate deduction for depreciating assets that cost less than $150,000 (increased from $30,000), provided the asset is first acquired at or after 7.30pm (by legal time in the Australian Capital Territory) on 12 May 2015, and first used or installed ready for use on or after 12 March 2020, but before 1 July 2020.
    • The Government is providing up to $100,000 to eligible small and medium sized businesses, and not-for-profits (including charities) that employ people, with a minimum payment of $20,000. These payments will help businesses’ and not-for-profits’ cash flow so they can keep operating, pay their rent, electricity and other bills and retain staff.
  • Bankruptcy measures include (amongst others):
    • The minimum amount of debt required to be owed before a creditor can initiate involuntary bankruptcy proceedings against a debtor has temporarily increased from $5,000 to $20,000.
    • The timeframe in which a debtor must comply with a bankruptcy notice has temporarily increased from 21 days to six months.
    • Directors have temporary relief from personal liability for insolvent trading if debts are incurred in the ordinary course of business.

Measures still in parliament – Super contributions for those aged 65 and 66.

After quickly passing the Stimulus Bills through parliament on 23 and 24 March, the Government has announced that the next sitting day will be 11 August 2020, almost five months from now, with the Federal Budget also to be delayed by almost five months until Tuesday 6 October 2020.

This unfortunately will delay legislation which was already waiting in parliament such as the provisions for super contributions for 65 and 66-year-olds. This measure has been keenly anticipated by advisers who are deciding whether to use the bring-forward provisions for their 64 and 65-year-old clients in 2019/20. Now we will not know until 2020/21 whether the work test will be relaxed for those aged 65 and 66 in 2020/21, meaning advisers will have to make a decision now. Do clients utilise the bring-forward provisions in 2019/20 (maximum $300,000 non-concessional contributions for the three years from 2019/20 – 2021/22) or hold off and hope the provisions pass in FY 2020/21 (if they do, potential maximum $500,000 non-concessional contributions over next three years from 2019/20 – 2021/22, and maybe more if the non-concessional contributions caps thresholds index over the coming years. But risk no non-concessional contributions if provisions do not pass in future).


Appendix A – list of payments for First 2020 economic support payments

Centrelink:

  • Age Pension
  • Disability Support Pension
  • Carer Payment
  • Parenting Payment
  • Wife pension
  • Widow B Pension
  • ABSTUDY (living allowance)
  • Austudy Payment
  • Bereavement Allowance
  • Newstart Allowance
  • Jobseeker Payment
  • Youth Allowance
  • Partner Allowance
  • Sickness Allowance
  • Special Benefit
  • Widow Allowance
  • Family Tax Benefit, including Double Orphan Pension
  • Carer Allowance
  • Farm Household Allowance

DVA:

  • Service Pension
  • Income Support Supplement
  • Compensation payments, including lump sum payments
  • War Widow(er) Pension
  • Veteran Payment
  • Education Scheme recipients
  • Disability Pensioners at the temporary special rate
  • Income support pensioners at $0 rate

Appendix B – Key websites

Centrelink: servicesaustralia.gov.au/individuals/subjects/affected-coronavirus-covid-19

ATO: ato.gov.au/Individuals/Dealing-with-disasters/In-detail/Specific-disasters/COVID-19/

Appendix C - Government announcements of 30 March 2020

On 30 March 2020 the Government announced a number of additional stimulus measures in response to the COVID-19 pandemic.  These measures have not yet been legislated and may be subject to change as they become law.  

The Government has announced that it will recall Parliament to pass legislation to effect these measures.

ChallengerTech will keep you informed as these measures become law.

JobKeeper Payment

The Government will provide a wage subsidy to around six million workers who will receive a flat payment of $1,500 per fortnight (equivalent to 70% of the national median wage) through their employer, before tax.

The payment will be open to eligible businesses that receive a significant financial hit caused by the coronavirus.

The payment will be paid to employers, for up to six months, for each eligible employee that was on their books on 1 March 2020 and is retained or continues to be engaged by that employer.

Where a business has stood down employees since 1 March 2020, the payment will help them maintain connection with their employees.

Employers will receive a payment of $1,500 per fortnight per eligible employee. Every eligible employee must receive at least $1,500 per fortnight from this business, before tax, including those who have been stood down, those who ceased employment from 1 March 2020 and have since been re-engaged with, or employees receiving less than $1,500 per fortnight before tax. For those employees earning more than $1,500 per fortnight before tax, they will continue to receive their regular income, subsidised in part by the JobKeeper payment.

Payments will be made to the employer monthly in arrears by the ATO. It will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper Payment. 

The program will commence on 30 March 2020, with the first payments to be received by eligible businesses in the first week of May.

Eligible employers will be those with annual turnover of less than $1 billion who self-assess that have a reduction in revenue of 30 per cent or more, since 1 March 2020 over a minimum one-month period.

Employers with an annual turnover of $1 billion or more would be required to demonstrate a reduction in revenue of 50 per cent or more to be eligible. Businesses subject to the Major Bank Levy will not be eligible.

Eligible employers include businesses structured through companies, partnerships, trusts and sole traders. Not for profit entities, including charities, will also be eligible.

Full time and part time employees, including stood down employees, would be eligible to receive the JobKeeper Payment.  Where a casual employee has been with their employer for at least the previous 12 months they will also be eligible for the Payment.  An employee will only be eligible to receive this payment from one employer. 

Eligible employees include Australian residents, New Zealand citizens in Australia who hold a subclass 444 special category visa, and migrants who are eligible for JobSeeker Payment or Youth Allowance (Other).

Self-employed individuals are also eligible to receive the JobKeeper Payment.

Employees will receive a notification from their employer that they are receiving the JobKeeper Payment. The majority of employees will need to do nothing further, but employees who have multiple jobs, are not Australian citizens or are currently in receipt of an income support payment will have additional obligations.

Eligible businesses can apply for the payment online and are able to register their interest via ato.gov.au from 30 March 2020. Employers will need to provide information to the ATO on eligible employees, however for most businesses the ATO will use Single Touch Payroll data to pre-populate the employee details for the business.

Income support partner pay income test

JobSeeker Payment is subject to a partner income test.  The Government has announced that it is temporarily relaxing the partner income test over the next six months to ensure that an eligible person can receive the JobSeeker Payment, and associated Coronavirus Supplement, providing their partner earns less than $3,068 per fortnight, around $79,762 per annum (a temporary increase from the current cut-off of approximately $48,000 per annum).

The personal income test for individuals on JobSeeker Payment will still apply.

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To find out more information or for any questions, please contact your BDM or email us.