Coronavirus crisis: How the government is financially supporting retirees

With the government making almost daily announcements about the measures it is putting in place to protect and support Australians, be it physically, mentally or financially, from the impact of coronavirus, it can be difficult to keep up with the changes.

The Morrison administration has so far unveiled two economic stimulus packages, including a range of payments and actions intended to prop up the economy, from helping small businesses to those who find themselves out of work, or for Australians who rely on welfare payments or the Age Pension to get by on a day-to-day basis.

This is a round-up of what the government has provided so far.

Cash payments

More than two million Age Pensioners, as well as recipients of other government payment such as Jobseekers allowance, are set to pocket two separate payments of $750 from the government in response to the coronavirus crisis.

The first payment, announced on March 12, will automatically reach the bank accounts of those eligible from March 31. If you are already receiving an eligible payment from Centrelink, there is no need to do anything in order to receive the payment. The second payment will be made from July 13.

Nick Bruining, an independent financial adviser and the author of the Don’t Panic! series of books on retirement income, says there are two big pluses built into these payments – they’re per-pensioner, not per pensioner couple, and they’re paid in full even to part-pension recipients.

“If you’ve got two pensioners in the household, you can expect cheques or a deposit of $1,500,” he says. “Similarly, people that are on a part pension, will get the whole $750.”

Noel Whittaker, the veteran financial commentator and author of the popular Making Money Made Simple series of books, encourages people who may previously have been denied the pension or other entitlements due to the value of their assets to reinvestigate whether they’re eligible, because the asset test threshold for receiving payments rose on March 20.

“You can ask Centrelink to revalue your investments at any time, which may change your payment rate, meaning you could get a higher payment or become eligible for a payment you did not receive previously,” he says. “All your investments are re-valued at the same time, though, so even if one has lost value, Centrelink may find that your total asset value has gone up, and your pension may be reduced.”

Deeming rates

The government has reduced both the upper and lower social security deeming rates by a further 0.25 percentage points, in addition to the 0.5 percentage point reduction to both rates announced on March 12. This follows the RBA’s decision to slash the cash rate once again, bringing it to a record low of 0.25 per cent.

Announcing the off-calendar rate cut on March 19, Governor Philip Lowe said that while coronavirus is primarily a health issue, the ongoing situation is continuing to take its toll on the financial system, leaving the RBA with no option but to lower interest rates.

Deeming rates are used by Centrelink to determine the income a person may receive from a financial asset, which may be higher or lower than the real rate of return received on that asset. The deemed income is then used to calculate pension entitlement.

Bruining advises older Australians to check immediately what value is being assigned by Centrelink to their superannuation, because the value of most funds has fallen as stock markets have tanked.

“It’s really important that if you have online access, and hopefully most of our audience do, to check your Mygov records to see the value attached to your account-based pension because we’ve seen some huge differences between what Centrelink is using in their systems and what it’s actually worth now,” Bruining says. “Check that the values they’ve been using are entirely accurate. In my experience, virtually none of them are.”

Emergency super access

Off the back of the Covid-19 outbreak, the government will people to access up to $10,000 of their superannuation savings in 2019-20 and a further $10,000 in 2020-21. Those eligible for early access to their super – which includes those who are unemployed, claiming the Jobseeker payment or who have been made redundant – can apply online through myGov before July 1.

“While superannuation helps people save for retirement, the Government recognises that for those significantly financially affected by the Coronavirus, accessing some of their superannuation today may outweigh the benefits of maintaining those savings until retirement,” a statement published by the Treasury reads.

Bruining cautions against doing so, however, unless it’s an absolute financial necessity because of the difficulty for over-65s in putting the money back into the tax-efficient super system at a later date.

“Be very careful about just ripping it out for the sake of it,” he warns. “If there’s a real need for it, by all means do so, but having it in a bank account where you can’t put it back into super later if you don’t use it – I don’t think that’s a very smart move … If you’re over 65 and you later decide to put it back into super, there’s a whole lot of rules that you need to comply with to do so.”

Minimum drawdown cut

The government also reduced the minimum drawdown requirements for people who’ve started account-based pensions by 50 per cent for the 2019-20 and 2020-21 financial years

For those under the age of 65, the minimum drawdown rate dropped from 4 per cent to 2 per cent, those aged 65-74 are looking at rates of 2.5 per cent, down from 5 per cent, while it rises to 3 per cent for those aged 75-84 . To see the full list of updated drawdown requirements, click here.

Many older Australians are currently questioning whether they should continue drawing down anything more than the minimum from their super as income, given the falls in fund values, or if it may be better to rely more heavily on savings outside super if possible. And others are keen to know if they should put off creating an income stream from their super via an account-based pension.

Whittaker says the answer depends on whether they’ve already started an income stream and on their assets outside super.

“Once you start to draw down, your super fund becomes a tax-free fund and you draw a tax-free income, so for most people, they’re better off drawing the super pension when they can, then their fund becomes a tax-free fund,” he says. “But if you’ve got a heap of assets outside super, you could be better to leave it in the accumulation phase and take a tax of 15 per cent on investment returns.”