In 2020, more than ever before, and particularly in light of COVID-19 Government relief measures in superannuation, we recommend you review your financial situation, goals and strategies – including your super contributions – and make any necessary adjustments before June 30.
In this article, we outline the Government’s COVID-19 superannuation relief measures. We also include a word of warning* if you were considering cancelling your insurance cover.
#1 Temporary rent waiver by an SMSF tenant to a related party
The ATO has announced that in certain circumstances for the 2019/20 and 2020/21 financial years, for commercial property owned by a SMSF, the trustee (in their capacity as the landlord) may be able to offer a tenant rent relief because of the financial impacts of COVID-19. This may be relevant if you own your business premises within your SMSF and you have experienced a reduction in revenue as a result of COVID-19. Any reduction, deferral or waiver of rent must be done in compliance with arm’s length rules.
SMSF trustees as landlords for commercial premises should seek advice to ensure any lease alteration is valid and complies with the legislation and temporary COVID-19 relief measures.
#2 Temporary reduction in pension minimum drawdown rates
The Government has recently announced they will halve the minimum pension drawdown amount for the 2019/2020 and 2020/2021 financial years.
For retirees drawing a pension from their super, this measure may provide greater flexibility including the opportunity to leave cash and investments not immediately required inside the super environment, which may assist in not selling assets at depressed prices.
To understand how to make the most of this measure for your circumstances, we strongly recommend discussing your options with your financial adviser along with any other financial concerns you may have around funding your retirement lifestyle from super both during and beyond the COVID-19 event.
#3 Temporary early release of superannuation
Those significantly financially affected by COVID-19 may be able to access up to $10,000 of their superannuation before 30 June 2020 and then a further $10,000 after 1 July 2020. This offer is available until approximately September 2020, after which time withdrawing withdrawing funds from superannuation will be subject to the usual age and retirement conditions.
Eligibility criteria include having experienced, as a result of COVID-19, losing your employment; becoming eligible to receive a Government support payment including JobKeeper and JobSeeker; being made redundant on or after 1 January 2020; or having your working hours reduced by at least 20%.
While we understand that financial hardship may dictate your actions, we strongly recommend exploring all other financial avenues first and implore you to seek advice and very carefully consider the future repercussions on your retirement savings should you take up this early release measure particularly if you don’t plan to retire for several decades.
For most superannuation funds, recent share market volatility has meant superannuation balances have taken a solid hit.
Withdrawing $10,000 or $20,000 now means you would be withdrawing from your fund when your investments are at a low market price. That will likely result in you losing a larger than usual proportion of your super than if you were to wait and withdraw funds later at the usual legislated retirement age.
Some financial sources are predicting that if a 25-year-old takes full advantage of the Government’s offer of early access to their super funds, they could lose between $58,000 and $84,800 in retirement savings by the time they reach retirement age.1
In addition to the three super relief measures highlighted here, you will also need to consider whether any changes in your circumstances (apart from COVID-19) will mean that super strategies not previously suitable are now appropriate for you. These may include maximising your concessional contributions to super, making tax effective spouse contributions to super and managing capital gains and losses. Your financial adviser is best placed to help you consider these strategies.
* A word of warning before cancelling your insurance
Premium waivers and suspended cover for Life Insurances
If you’ve been stood down by your employer or lost your job, you may qualify for premium payment relief for your Life, Total and Permanent Disability, Trauma, Income Protection policy premiums.
Many quality insurers offer the ability to suspend cover for up to 12 months, which allows you to have a break from paying insurance premiums while you find new employment. Although you won’t be covered under your policy during this period, there are several sound reasons why suspension may be preferable to cancelling your cover.
For example, once you’ve found new employment, you can reactivate your existing cover with existing conditions, whereas new insurance policies may include different and less favourable conditions. These may include loadings due to changes in your occupation, age, health or pastimes and some benefits may be excluded. In some cases, new cover may even be declined.
IMPORTANT: If you have an agreed value Income Protection policy and you cancel your cover, you won’t be able to get that cover back due to recent changes to Income Protection insurance benefits. For more information, please refer to our article on changes to agreed value Income Protection cover.
Your next step…
The end of the financial year is the right time for mining & resources executives, professionals and business owners to review your financial strategies. This is more important than usual in 2020 given the COVID-19 context.
In this article we have focused on COVID-19 superannuation relief measures. However, we also appreciate there may be other matters causing concern amid the current health and economic situation. We would like to remind you that Resources Unearthed was founded specifically to provide information, support and advice for executives, professionals and business owners in the mining and resources industries.
Should you need access to specialised professionals in areas of financial, legal, taxation, accounting and business advice, we’re here to help.
Please contact us if you have any questions or concerns about how COVID-19 relief measures may apply to you by calling +61 (0)7 3007 2000 or emailing contact@resourcesunearthed.com.au
1 https://www.smh.com.au/business/banking-and-finance/last-resort-funds-urge-caution-warn-of-real-cost-of-20-000-super-dip-20200323-p54cva.html
Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting & business advisory services for executives, professionals and business owners in mining and resources.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.
