Financial Planners and Investment Advisers Sydney North Shore  1300 623 936 rob@mcinvest.com.au

The Australian Government’s economic stimulus package is very clear on its intent: to keep people in work, to keep businesses open, and to ensure the economy bounces back once the Coronavirus challenge has been overcome.

If you’re a retiree, either self-funded or receiving the age pension, you might be wondering whether anything in the package applies to you.

There are, in fact, a number of initiatives which have direct application to retirees.

Temporarily reducing superannuation minimum drawdown rates

Retirees with account-based pensions are required to drawdown a minimum percentage from their income account each financial year based on their age.

Under the temporary reduction in minimum drawdowns, this minimum percentage has halved for the 2019-20 and 2010-21 financial years.

Here’s how it works depending on your age:

Age Default rates

Reduced rates

2019-20 & 2020-21 income years

Under 65 4.0% 2.0%
65-74 5.0% 2.5%
75-79 6.0% 3.0%
80-84 7.0% 3.5%
85-89 9.0% 4.5%
90-94 11.0% 5.5%
95 or older 14.0% 7.0%

The reduced rates are designed to help retirees who are concerned about selling investment assets at the worst possible time to make pension payments when their fund does not have enough cash to fund the pension amounts. The reduced rates are not compulsory, so if you’d prefer to maintain your income, you can continue to do so.

A similar approach was adopted in the wake of the GFC. Minimum payments were halved for three years, and reduced by 25% for a further two years. Whether the temporary reduction introduced in response to the Coronavirus extends beyond two years remains to be seen, and will no doubt reflect the state of the financial markets going forward.

If you have an account-based pension, or similar product, you should contact your product provider or adviser to discuss the best course of action for you.

Cash payments to pensioners

Pensioners, veterans, other income support recipients and concession card holders, including Commonwealth Seniors Health Card holders, will receive two payments of $750. These payments are designed to support confidence and domestic demand in the economy. In other words, the Government hopes the money will be spent.

These payments will be tax free and will not count as income for pensioners and welfare recipients. The first payments commenced on 31 March 2020 and are being paid on a progressive basis. The second payments will be made from 13 July 2020.

Payments will be made automatically to bank accounts, so you’re not required to do anything.

The Government forecasts that around half of those who receive this payment will be pensioners.

Reducing social security deeming rates

Two reductions to deeming rates were announced in March, bringing the new rates to 2.25% (upper rate) and 0.25% (lower rate).

 

New deeming rates:

Status Thresholds Current deeming rates

New deeming rates

(effective 1 May 2020)

Single First $51,800 1.00% 0.25%
Balance over $51,800 3.00% 2.25%
Couple First $86,200 1.00% 0.25%
Balance over $86,200 3.00% 2.25%

‘Deeming’ is a key factor in the age pension income test and is also applied when assessing eligibility for the Commonwealth Seniors Health Card (CSHC).

Under the deeming rules, you are ‘deemed’ to earn a certain annual rate of return on your financial assets, regardless of the rate of return you actually earn. Your returns could be higher or lower than the deeming rates. Common types of investment assets that are ‘deemed’ include savings accounts, terms deposits, shares, managed investments and account-based pension income streams.

The reduced deeming rates reflect the very low interest rate environment we have currently. The Government estimates that the change will benefit around 565,000 age pensioners who will, on average, receive around $105 more of the age pension in the first full year the reduced rates will apply.

You do not need to do anything to take advantage of the new rates – age pension entitlements will be adjusted automatically. The extra money will start flowing into pensioners’ bank accounts from 1 May 2020.

For more information on the Australian Government’s Economic Response to the Coronavirus visit https://treasury.gov.au/coronavirus.

How can we help?
If you’d like to know more, please call us on 1300 623 936 to arrange a time to meet and we can discuss your particular requirements in more detail.

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