In a rapidly evolving response to the spread of COVID-19, the Federal Government’s second support package announced over the weekend has flicked the switch to more income support for retirees and workers.
Between the first $17.6 billion package announced on March 12, and this latest $66.1 billion package, the emphasis has shifted from stimulus aimed at keeping businesses up and running, to support for individuals to get them through the crisis.
Importantly, casuals and sole traders along with employees who lose work due to the coronavirus shutdown will receive help.
Retirees affected by falling superannuation balances and deeming rates out of line with historically low interest rates have also been offered some reprieve.
Minimum pension drawdowns halved
Self-funded retirees will be relieved the Government has moved quickly to temporarily reduce the minimum drawdown rates for superannuation pensions.
Similar to the response in the wake of the Global Financial Crisis, minimum drawdown rates for account-based pensions and similar products will be halved for the 2020 and 2021 financial years.
This means retirees will be under less pressure to sell shares or other pension assets in a falling market to meet the minimum payments they are required to withdraw each financial year. For example, a 75-year-old retiree will now be required to withdraw a minimum of 3 per cent of their super pension balance this financial year and in 2020-21, instead of the usual 6 per cent.
The new rates are in the table below:
Deeming rates cut again
In addition to the cut in pension deeming rates announced in the first stimulus package, the Government has cut deeming rates by a further 0.25 percentage points. This reflects the Reserve Banks latest cut in official interest rates to a new low of 0.25 per cent.
Deeming rates are the amount the Government ‘deems’ pensioners earn on their investments to determine eligibility for the Age Pension and other entitlements, even if that rate is lower than they actually earn.
This move will bring deeming rates closer in line with the interest rates pensioners are receiving on their bank deposits, especially those with lower balances.
From 1 May 2020, deeming rates will fall to 0.25 per cent on investments up to $51,800 for singles and $86,200 for couples. A rate of 2.25 per cent will apply to amounts above these thresholds (see table).
Early access to super
More controversially, the Government has also announced it will allow anyone made redundant because of the coronavirus, or had their hours cut by more than 20 per cent, to withdraw up to $10,000 from their super this financial year and a further $10,000 in 2020-21.
Sole traders who lose 20 per cent or more of their revenue due to the coronavirus will also be eligible.
The Treasurer said the process is designed to be frictionless, with eligible individuals able t
