SMSF specialists have responded to the government’s announcement of changes to pension drawdown payments and early access to superannuation, as part of a COVID-19 relief package, by pointing out the pension measures will have some restrictions and details about how early access will apply to SMSFs has not been released.
Under the measures announced over the weekend, the government will relax the early-access provisions and allow superannuants access to up to $10,000 in the 2020 and 2021 financial years and reduce minimum pension drawdown requirements by 50 per cent.
Heffron head of SMSF and technical services Lyn Formica said early access to superannuation benefits due to severe financial hardship had only been available under very limited circumstances and the government announcement to allow temporary, but limited, early access was significant.
In comments published on the Heffron website, Formica noted there was no requirement for those seeking early access to be already receiving commonwealth income support payments and there would be no waiting period before an application could be made.
“There are no income or assets tests,” she noted, adding: “Even someone with a very high salary who remains employed and has other assets could access this payment as long as their salary has been reduced by 20 per cent after 1 January 2020.”
While members of Australian Prudential Regulation Authority (APRA)-regulated funds will be able to apply directly to the ATO via their myGov account for early access, the regulator had not yet released details about the process for SMSFs.
For APRA funds, the ATO will process applications and determine eligibility before notifying the relevant superannuation fund to make a payment to the individual, and Formica expects a different process will apply to SMSFs.
“While we understand the eligibility rules for SMSF members will be the same as for members of non-SMSFs, separate arrangements are being made and there may be a different process to follow when moneys are to be released from an SMSF,” she said.
She also cautioned SMSFs from withdrawing funds until the ATO releases further guidance.
“Note that anyone who simply withdraws money from their SMSF now, or even after mid-April, but does not follow the right process, will be subject to the usual rules. This could be substantial tax and other penalties – it is vital to wait until the new rules are in place,” she said.
Verante Financial Planning SMSF specialist adviser Liam Shorte said the government’s decision to temporarily reduce the minimum pension drawdown requirements on superannuation income streams for the rest of the 2020 financial year and for the full 2021 financial year had widespread benefit.
“The measure will benefit many retirees, not just SMSF members, by reducing the need to sell equity and bond investments that have taken a hit to their value in the last month to fund their minimum pension drawdown requirements,” Shorte said in comments on his website, noting the reduction would apply to account-based pensions, transition-to-retirement pensions, allocated pensions and market-linked income streams.
He said pension members who had already taken payments equal to or above the new 50 per cent reduced minimum would not be required to take any further payments before 30 June 2020, but he cautioned retirees not to game the system if they were over the minimum amount.
The measures were forward looking only and where a minimum pension had already been taken, that could not be changed, he said, adding: “So, no you can’t try to sneak a payment back in to the SMSF bank account.”
Rather, he said anyone who needed pension payments for living expenses, but had already taken the 50 per cent reduced minimum, should treat it as a lump commutation sum rather than a pension payment, or take the excess as a lump sum from an accumulation account balance, if they held one, to preserve as much money in tax-exempt pension phase as possible.
He noted the first strategy would create a debit against the pension member’s transfer balance account and recommended trustees “discuss this with your accountant and adviser as soon as possible as some funds will have to report this quarterly and others on an annual basis”.
