27/03/2020Money

Everything you need to know about accessing your super early – and other financial measures that you can look at taking up instead

Australia has certainly been hit hard over the last few weeks. The Federal Government has stepped in with a new measure that enables Australians experiencing financial hardship to access up to $20,000 of their superannuation over the next few months. Here’s what you need to know – and why it’s something that should be a measure of last resort.

How can I access my super early?

Typically, you can only access your super once you reach the“preservation age” and you have met one of two conditions for release: (1) you’ve retired from the workforce; and/or (2) you have turned 65. There are exceptions that enable you to access your super early provided you meet certain conditions(note, these are all taxed differently), however the Federal Government has announced a new exception that enables Australians who are suffering financial hardship due to COVID-19.

Key points:

  • This measure won’t be available until mid-April.
  • Members apply directly to the ATO through the online MyGov portal; this determination is made by the ATO, not their super fund.
  • A tax-free release of $10,000 is available before 1 July 2020 anda further payment is available from 1 July 2020 until 24 September2020 (i.e. total of $20,000 in the 2020 calendar year).

Eligibility criteria:

You must satisfy any one or more of the following:

  • You are unemployed; or
  • You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
  • On or after 1 January 2020, either:
    - you were made redundant
    - your working hours were reduced by 20% or more
    - if you are a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.

As with all financial decisions, accessing your super early needs to be considered thoroughly as it will impact you financially in the future.

Pros:

Access to funds which may relieve you of your current financial burden:

  • to support you and your family with keeping a roof over your heads, putting food on the table and paying for everyday necessities.
  • to assist with your business expenses as a sole trader, in particular rent, if you have a shop front that has been closed or have seen a significant drop in turnover.

Cons:

  • The funds you take out of your superannuation early will have financial consequences in the future – you will have fewer funds available for retirement.  
  • Australians are already retiring with inadequate funds in their super. While the average balance for men and women is currently $270,710 and $157,050 respectively, the amount recommended by the Association of Superannuation Funds of Australia for a comfortable retirement is $545,000 for a single person and $640,000 for a couple. This means we need to be putting more into our superannuation, not taking money out.
  • It’s not just the $10,000 or $20,000 you’re withdrawing from your fund – it’s all the compound returns you’re also missing out on. A 25-year-old withdrawing $10,000 from their super today will be $22,620 poorer when they retire (adjusted for inflation).
  • If you access all of your super, you may lose your insurance benefits (e.g. income protection, death or total and permanent disability).
  • Divesting superannuation (in other words, taking money out of investment) while the share market is currently low means you’ll miss out on potential gains when the market inevitably recovers back upwards.
  • You will lose an asset that is protected in bankruptcy and otherwise protected from creditors until you take it out of the fund.


“As with all financial decisions, accessing your super early needs to be considered thoroughly as it will impact you financially in the future.”



Other options for financial relief

The good news is that there are other many other fiscal measures that the government, banks and service providers have put in place to provide financial security for Australians experiencing hardship over the next few months.

First, welfare recipients who were eligible for the initial $750 stimulus payment – which should be hitting the bank accounts of approximately five million Australians (including those on aged and disability pensions, veterans, eligible concession cardholders and people on Newstart andYouth Allowance) on 31 March – will receive an additional $750 on 13 July.

Additionally, individuals who are on Newstart (JobSeeker), Youth Allowance, parenting payments, the farm household allowance and special benefit will receive a new fortnightly jobseeker payment of $550 for the next six months starting from 27 April.

The payment has been dubbed the “coronavirus supplement”, and the government is waiving assets and waiting periods to access the payment.Sole traders and casual workers are also eligible for this payment, as are individuals who have lost their jobs and people who are caring for someone with the coronavirus, however they will need to apply for the payment throughCentrelink and meet the income test of earning less than $1,075 a fortnight.  

This supplement is in addition to other welfare payments that individuals are already receiving, as well as the two lots of $750 stimulus payments.

Other avenues Australians can explore to help them weather the COVID-19 crisis include asking your bank to defer home loan payments for up to six months (an initiative supported by many banks). For renters, laws are currently being debated in the Tasmanian Parliament that could protect renters from eviction for the next four months – and it’s something that NSWis looking at implementing, too.

A handful of utility, internet and mobile network providers have also announced COVID-19-specific measures to help customers with bill payments. Beyond that, all providers also have financial hardship programs that can help customers who are having difficulties paying their bills.

This is only a brief guide and it is recommended that you speak to a financial advisor to discuss the best options for you in your circumstances.

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Disclaimer

All information provided in the magazine is sourced from independent writers & may contain general advice that is not endorsed by the FairVine Super Plan.