COVID-19 Changes the SMSF Landscape – Part 1: Temporary Reduction for Pensions

COVID-19 Changes the SMSF Landscape – Part 1: Temporary Reduction for Pensions

In response to calls from the industry, the Federal Government has announced a second tranche of economic stimulus measures, this time in the form a ‘safety net’ for those negatively impacted by the consequences of COVID-19.

These changes include two important superannuation announcements.

Let’s have look at the first –

Temporary Reduction in Superannuation Minimum Drawdown Requirements

In a move that will seem familiar to many from the 2008 Global Financial Crisis, the required pension minimum is be reduced by 50% for both the 2020 and 2021 financial years.

The Government Fact Sheet can be found here.

The revised rates are:

Are SMSFs included as funds that will offer the reduced drawdown requirement?

Yes. The measure is expected to apply to all superannuation funds, including SMSFs. As always, the trustees should double check their trust deed to ensure they have the flexibility to make this adjustment.

The trustee has already exceeded the required minimum for 2019-20. Can they put some back?

No, this will not be possible. If the members are eligible to contribute, they may return the funds to superannuation this way.

The trustee had drawn an amount of pension equal to the now-reduced minimum before this blew up. Does the reduction apply to them?

Yes. They are not required to withdraw any further pension payments in the 2019/20 year.

The trustee is commencing a pension next week. Does the reduction apply to them?

Yes. Their required minimum drawdown for the newly commenced pension will be the reduced amount.  We anticipate the measure will apply to all pensions that are paid during the reduction period – not just those in existence when it was announced.

The SMSF is running a Market Linked Pension – does the reduction apply?

Yes, we expect that the reduced drawdown requirement will apply to Account Based Pensions, Allocated Pensions, and Market Linked Pensions (also referred to as Term Allocated Pensions). At this point, we don’t expect the relief to apply to lifetime or life expectancy pensions.

What are the SMSF audit ramifications?

Basic housekeeping only on this front:

1.    Ensure the SMSF deed will permit reduced minimum pension payments; otherwise the fund may find itself in breach of the deed despite being within the flags for legislation. The auditor will check that the fund is eligible per the deed.

2.    The trustee should prepare a minute confirming that the SMSF is offering member’s the reduced drawdown requirement for each relevant income stream in the fund.

As further details come to light, we will keep you posted – so watch this space.

Part 2 of the superannuation changes – $10,000 Temporary Early Access

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