Five critical things to know before accessing your superannuation early
Cash-strapped Australians are rushing to access their superannuation early but there are some critical things to note before submitting your application.
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A stampede of struggling Australians desperate for a quick cash injection have rushed to withdraw superannuation this month – many of whom are doing it for the second time this year.
Under the Federal Government’s early access to superannuation scheme from Wednesday the second tranche opened up, allowing Australians who could show they had suffered COVID hardship to withdraw up to $10,000 from their retirement savings.
But experts are warning those who do dip into their super accounts that it comes at a significant cost and should only be done as a last resort.
These are five things you must know before rushing in to grab quick and easy cash.
1) SHOULD YOU ACCESS SUPER?
Before applying to withdraw money from your superannuation account under the new scheme, the Association of Superannuation Funds of Australia’s chief executive officer Dr Martin Fahy said you should check all other options available.
“We want to make sure people tap into every available Federal Government support that is available before drawing down on your super,” he said.
“We need to be really prudent that people only draw down that money as a last resort.”
Dr Fahy said under the JobKeeper scheme eligible employees could receive up to $19,500 over six months and this should be done if possible before tapping into super.
In a new ASFA report, “Experience to date with the early release of superannuation”, it found around 25 per cent of applicants had a balance of under $6000 and 40 per cent had a balance under $10,000 after access the scheme.
Dr Fahy said members who drain their balances down to zero “risk losing your default insurance cover which is part of your superannuation”.
“This is something we don’t want people to expose themselves to,” he said.
Insurance types include life, total and permanent disability (TPD), and income protection cover.
The ATO’s assistant commissioner Sonia Corsini said they don’t ask for supporting evidence when submitting an online application “but you should keep good records to support your application”.
2) HOW MUCH YOU CAN WITHDRAW
Eligible Australians who have suffered a significant hit to their income were able to withdraw $10,000 before June 30 and another $10,000 this financial year up until September 24.
But applicants should be clear on this – you can take out any amount, as long as it’s less than $10,000.
Freelance marketing manager Beth Carmody, 25, from Chippendale in inner Sydney, said she was forced to withdraw money from her superannuation in the first tranche after she let go by her employer.
“I was living out of home and lost my job due to COVID and I didn’t want to move back in with my parents,” she said.
“I withdrew $2000 while I was waiting for Jobseeker to start because for about six weeks I was paying $275 a week in rent.”
Ms Carmody has since found work again and said she hasn’t spend the withdrawn money.
She plans to deposit it back into the her super fund soon once she has filed her tax return.
Latest figures from the Australian Taxation Office showed up until June 29 2.36 million Australian applied for early access to super and have withdrawn $19.4 billion.
The average amount withdrawn is $8220.
The ATO’s Ms Corsini said applicants could be forced to explain how they assessed their own eligibility for early access and provide relevant evidence.
“If you are unable to demonstrate your eligibility we may revoke the determination that we issued in respect to your application,” she said.
“That means that any money you withdrew from our super will be taxable and you’ll need to include it in your return.”
“In addition to this we may apply financial penalties.”
3) IMPACT ON RETIREMENT
Withdrawing the money now can have a significant impact to your superannuation balance once you stop work.
Visit the government’s Moneysmart website to access an early access to super calculator.
It bases figures on a person with an annual income of $50,000 who annual investment returns are 7.5 per cent.
It shows for a 30-year-old withdrawing $10,000 it would equate to a loss of $21,516 come retirement at age 67.
While for a 50-year-old it would result in a loss of $14,253 come retirement.
4) SPENDING THE MONEY
Once the money is withdrawn it’s up to the recipient to spend it how they please.
Financial comparison website RateCity’s spokeswoman Sally Tindall said regardless of how much you withdraw “make sure you spend the money wisely”.
“Try to take as little as possible and don’t get tempted into buying things that won’t improve your situation,” she said.
“If you need it for day-to-day living expenses try and restrict yourself to the essentials.
“Using your super to upgrade your TV might seem like a good idea now but chances are you’ll be kicking yourself when you go to retire.”
The early release scheme has come under intense scrutiny recently after there were reports some people admitting withdrawing the money and gambling it.
5) PAYING IT BACK
ASFA’s Dr Fahy said anyone withdrawing super early should have a plan to eventually put the money back into their retirement account.
“You can make before-tax concessional contributions, you can salary sacrifice,” he said.
The compulsory superannuation guarantee is also scheduled to rise from 9.5 per cent up to 12 per cent by 2025.
There has been much debate recently on whether the next increase to 10 per cent due to kick in on July 1, 2021 should be delayed given the financial fallout from the COVID-19 pandemic.
Intrust Super’s chief executive officer Brendan O’Farrell urged members who had made early release withdrawals to try and tip the money back in when they could.
“If you needed to make an early release withdrawal from your super account and your finances are now under control, consider quickly getting back into the discipline of making regular contributions,” he said.
“The sooner you recharge your account the quicker you will rebuild you balance.”
HOW TO ACCESS SUPER EARLY
• Check your super balance online to check your have sufficient funds.
• Make sure you are eligible. This includes being made redundant in 2020, receiving Jobseeker or you’ve had your working hours reduced by 20 per cent or more.
• Ensure your bank details, which the ATO & your super fund have, are up to date.
• Visit the myGov website, then click on the ATO portal.
• Click on the COVID-19 measures.
• Go to the early release of superannuation and click on ‘apply’.
• Only submit one application.
• It can take up to four business days for the ATO to process your application.
• An outcome letter will be sent to your myGov inbox and you may also receive an SMS notification.
• It then takes another five business days for the fund to process the application before the funds are transferred.