Should You Access Your Super Early Due To COVID-19 ?
While accessing your super early has benefits, there are also significant risks to bear in mind.
Written by Victoria Kent, Senior Investment Specialist
This information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.
COVID-19 is a war on two fronts; involving both our healthcare system and economy.
As part of the Australian Government’s economic defence, changes were announced in March allowing eligible Australians and New Zealanders access to $10,000 of their super in 2019–20, and a further $10,000 in 2020–21.
So far this economic measure has proved to be very popular, with a large majority of Australians (79%) giving it their tick of approval.
A recent ABC report revealed the ATO has received 881,600 registrations of interest as at mid-April, with Assistant Minister for Superannuation Jane Hume quoted as saying:
“the Government expects around 1.6 to 1.7 million Australians will apply for early release of superannuation and that will equate to about $27 billion to come out of the system”.
While accessing your super early has benefits, there are also significant risks to bear in mind.
What’s the big deal?
Until now, you could only access your super prior to retirement if you met a condition of release.
In some cases this included ‘severe financial hardship’, where the trustee of a super fund had to be satisfied you are unable to meet reasonable and immediate family living expenses, along with other conditions. The maximum payment is $10,000 annually.
The $20,000 potential payout for COVID-19 early access to super demonstrates how seriously the government is taking this pandemic.
From a superannuation industry perspective, this is game changing.
We’ve already seen big industry super funds scramble to provide the liquidity needed to enable the early release of superannuation.
You see, it amounts to a lot of money.
Let’s say just 1% of Australia’s population take up the incentive, that’s a potential $5 billion early release in assets under management.
This is a terrifying proposition for the industry, especially when many of the larger scale super funds have significant investments in real or fixed assets such as direct real estate. Unlike shares, these assets are less liquid and can’t be quickly sold to generate the cash needed to fund these withdrawal requests.
It’s not surprising that many funds have since introduced marketing campaigns pleading with their members to consider avoiding accessing their super early.
Who can access their super early?
To apply for early access to super, you must satisfy anyone or more of the following requirements:·
you are unemployed; or
you are eligible to receive Centrelink payments such as a Job Seeker payment, Youth Allowance, parenting payments (which includes the single and partnered payments), special benefit or farm household allowance; or·
on or after 1 January 2020:
you were made redundant; or
your working hours were reduced by 20% or more; or
if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20% or more.
If you have money in more than one super fund, you can withdraw from multiple accounts provided the total amount does not exceed $10,000 in one financial year.
These temporary rules will also extend to most temporary visa holders with work rights, including international students and temporary skilled visa holders.
Does this make sense for me?
Like with most decisions, it really does depend on your individual circumstances.
SuperGuide recommends the early access incentive should be regarded as a last resort, acknowledging it also provides a welcome safety net. SuperGuide warns withdrawing money from your super now will “not only crystallise your losses but potentially shortchange your future.”
It is clear that a withdrawal now (much like a contribution now) will impact the amount of super you’ll have available in retirement.
According to the Association of Superannuation Funds of Australia (ASFA), to retire comfortably a single person will need retirement savings of $545,000 while a couple will need $640,000.
You may need to withdraw some of your super but be aware that reducing your funds will mean they lose the power of compound interest, which over time can be very substantial.
Superannuation, like any long-term investment, rides the ups and downs of the market over your working life – based on history this typically follows an upward trend over the long term.
When considering the recent market downturn, withdrawing your super money now could mean risking missing out on a potential market rebound, which could see your money grow to well over $10,000 by the time you retire.
Before you consider early access to your super, it’s worth exploring all your other options.
The Government has announced a range of other financial assistance measures, which includes income support payments and payments to support households.
However, if you have exhausted all your other options, and it means putting food on the table and surviving this upheaval, it’s only fair you have access to your retirement savings.
As Prime Minister Scott Morrison rightly said, it is your money.
If you are still uncertain, it might be worth getting financial advice. Services Australia’s Financial Information Service is one of many resources providing free, confidential financial information.
Unintended side effects
While we’ve covered how accessing your super early will affect your super balance and future retirement income, it may also affect your insurance cover (if you have it through your superannuation fund).
Insurance may not be available on accounts that:
are fully withdrawn
have a balance below $6,000
are inactive low balance accounts.
It’s definitely worth checking if you have insurance in your superannuation, what type of cover you hold, and what a withdrawal might mean for your eligibility.
How long do I need to wait to get the money?
According to the Australian Tax Office (ATO): After applying through MyGov, the ATO take us up to four business days to process your application and send you a letter of approval or rejection to your myGov inbox.
If approved, your superannuation fund is then notified and you should expect a payment to be made within 5 business days.
If your fund is a SMSF, you will need to let them know you have received the determination so they can make the payment to you.
Scam alert!
As if COVID-19 wasn’t enough to worry about, the Treasury have warned they are concerned about scams or schemes where people:
impersonate the ATO, or a trusted organisation like your super fund, to steal your money or personal identifying information
approach you and charge you for services that are free, like gaining early access to your superannuation.
If you are suspicious of a scam, you can call the ATO on 1800 008 540 to confirm if a contact you received was genuine.