In late March the government introduced initiatives to both assist current retirees and those in the workforce, either unemployed or underemployed as a result of the pandemic.
They offered support for Australians who have been laid off or were forfeiting 20% or more of their wages as a result of the pandemic enabling them to withdraw up to $20,000 from their superannuation fund in two installments, half in the 2020 financial year and half in the 2021 financial year.
It was reported that Australian Super, the nation’s largest fund, anticipated that up to 300,000 of its 2.2 million members were likely to take advantage of this proposal.
At the time of publishing this article, 456,000 individuals have been approved to access $3.8 million of their superannuation savings.
It was also acknowledged that this initiative may have a variable impact on superannuation funds subject to their liquidity constraints arising from lower contributions as unemployment rises and as members switch their investment options and minimise their exposure to illiquid assets.
Also at the time of the above announcement, the government legislated default minimum drawdowns, halving the minimum pension withdrawals in the current volatile equity market.
The default minimum drawdowns are particularly attractive for older pensioners as highlighted in the following table:
There were different provisions for those in transition to retirement and those in receipt of a complying lifetime or life expectancy or flexi-pension where draw downs were determined by an actuary.The government also revealed that where pensioners had progressively drawn beyond the new minimum, there was no further requirement for drawing down on their pension account for the balance of the current financial year.
A recent article by David Bell published by FirstLinks, a Morning Star company, will add further clarity to the government’s initiatives.
We noted in the last week that in an article featured in the Sydney Morning Herald, Tony Shepherd suggested providing workers with an income boost to the tune of $100 million by turning superannuation guarantee payments into a pay rise to keep the economy afloat without impacting on the deficit. His proposal as published in the Sydney Morning Herald on 9 April was every wage and salary earner be given the choice to receive their 9.5% superannuation contribution in their pay packet for a six month period.
In the same article it was noted that a spokesman for the Treasurer said this was not a policy that was being considered by the government and had also been rejected by the Superannuation Industry.
In Egan Associates’ view, the government could consider allowing working individuals to reduce their current superannuation contributions by up to 50% in the final quarter of the 2020 financial year and for the 2021 financial year. This would be particularly helpful in circumstances where individuals’ (family’s) annual salaries were reduced by their employers providing further cash to enable them to manage living costs during the coming fifteen months.