While accessing your super early has benefits, there are also significant risks to bear in mind, writes Olivia Herlambang-Tham. Here’s what you should consider.
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 majority of Australians (79 per cent) giving it their tick of approval. Recent media reports showed 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 find liquidity needed to enable the early release of superannuation. You see, it amounts to a lot of money.
Let’s say just 1 per cent 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 JobSeeker 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 per cent or more; or
- if you are a sole trader, your business was suspended or there was a reduction in your turnover of 20 per cent 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 that 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, 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.
NB: 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.
Victoria Kent is Elevate Super’s Senior Investment Specialist
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