Early in the coronavirus financial meltdown, the government jumped in with substantial stimulus for corporations, but left a lot of employees and sole traders out to dry. To rectify this, the government announced the early access of superannuation measures.
This blog is designed to educate you on
- What even is Superannuation?
- What is the early release of super?
- Am I eligible?
- Should I do it? Are there any consequences?
This blog is in no way intended to be financial advice and you should seek a chartered accountant or financial adviser if you are looking for specific advice. This blog is general and informative in nature.
What even is super? Isn’t it just for old people retiring?
Superannuation (or ‘super’) is money set aside while you’re working, so you’ll have money to live off when you retire. It’s a very long term play.
Your employer, or you if you’re self employed, direct a percentage (currently 9.5%) of your salary to your nominated super account.
This money is invested by your super fund and earns returns, which will help grow your retirement savings. These funds will generally charge fees and have various investment options which range in risk and potential return.
Since your super is essentially there to fund your retirement, there are very limited circumstances where you can access your super prior to retiring.
Coronavirus is one of these reasons.
What is the early release of super?
If you have been financially affected by COVID-19, you may be able to access some of your superannuation early.
Eligible citizens and permanent residents of Australia or New Zealand can apply for up to $10,000 in 2019–20 and up to a further $10,000 in 2020–21.
Eligible temporary residents are able to apply once to access up to $10,000 of super in 2019–20.
Applications can be submitted online through myGov:
- until 30 June 2020 for the 2019–20 year
- between 1 July 2020 and 24 September 2020, for the 2020–21 year.
You will not need to pay tax on amounts released and will not need to include these amounts in your tax return.
Am I eligible?
Citizens and permanent residents of Australia and New Zealand
To be eligible for early release of super, a citizen or permanent resident of Australia and New Zealand must be in one of the following circumstances:
- You are unemployed.
- You
are eligible to receive one of the following
- jobseeker payment
- youth allowance for jobseekers (unless you are undertaking full-time study or are a new apprentice)
- parenting payment (which includes the single and partnered payments)
- special benefit
- farm household allowance.
- On
or after 1 January 2020 either
- you were made redundant
- your working hours were reduced by 20% or more (including to zero)
- you were a sole trader and your business was suspended or there was a reduction in turnover of 20% or more.
I’m eligible… Should I withdraw my super?
This is the million dollar question (well, $20k question) that I want to provide some perspective on. Remember, only you or a chartered accountant/financial adviser can make this decision with you, the below are simply general factors to consider.
- Current and Future value of investments
To quote ASIC’s Laura Higgins – “Money withdrawn and spent now is money you won’t have invested for the future”
Remember that earlier we mentioned that your superfund’s purpose is to plan for retirement, employing a long term investment strategy.
A long term investment strategy means that you may have some peaks and troughs along the way, but over 40-50 years, you will almost certainly be better off.
The problem with taking 20k out today is two fold.
- The superfund balances are likely at a low point due to the impact of corona virus on the financial markets. So your 20k that you take out today, was likely more than 20k 3 months ago. When you take the funds out, you crystallise this downturn
- If you take out the 20k now and spend it on regular expenses (not investments), you lose the potential to invest that 20k which in 40-50 years will highly likely be worth a lot more than 20k.
To give you an idea on the impact of your withdrawal, here is a link to a calculator designed by ASIC’s Money Smart. It shows you the future value of your withdrawal in todays terms. It’s a game changer.
https://moneysmart.gov.au/covid-19/accessing-your-super#jumpAnchor1
2. Have you exhausted other government stimulus measures before withdrawing super?
Unlike superannuation which is your own invested money, the government have injected significant stimulus of their own (technically still yours if you pay your taxes) into the market.
These measures are designed to subsidise your wage and keep you afloat if your work has been affected by corona virus.
You can CLICK HERE to gain access to our exhaustive stimulus guide or HERE to read our more brief blogs on what stimulus you’re eligible to.
As an employee the big ticket items which subsidise wages are jobkeeper and jobseeker, so they will be your first point of call. Business’ have options such as cashflow boost, asset write offs, small business loans through the banks and many more. Again, I would refer you to our extensive guide and blogs.
If you are still confused about what other stimulus measures are available, here is a link to our chartered accountants calendar where you can book in 15 Minutes for free and nut out what assistance is available to you.
https://calendly.com/jacob-advisory-corp/15min
3. What is your relationship with money?
Many people will have exhausted all other options and simply need to withdraw their super to fund themselves in a situation that no one could ever predict.
Some people will see this as simply a way to withdraw super and spend it on short term consumables that have no long term investment potential.
Others will see this as a way to control their investments and simply use the funds withdrawn to re invest based on their long term financial goals.
I will again remind you. Your superfund’s primary purpose is to provide you with benefits for your retirement. It’s a long term investment.
Therefore, if your strategy with the funds you withdraw from your superfund are not aligned with that of your superfund, you could be making a big decision about your future without knowing it.
Ensure that you get sound financial advice about whether it’s the right decision for you, based on your unique scenario and what you’ll be using the funds to actually do. This will help you make a more informed decision.
In conclusion
Determining your eligibility and then determining whether withdrawing up to 20k of your super is a significant decision that will impact you long term.
We highly recommend you see a financial adviser or tax agent who can discuss your eligibility and give you some guidance around whether it’s the right strategy for you.
Remember, there are other options available and you can go through these with our chartered accountants using the link below
https://calendly.com/jacob-advisory-corp/15min
General Advice Warning
The information contained in this blog/article is general in nature and does not take into account your personal situation.
You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser or tax agent.
This blog/article does not constitute financial advice and cannot be relied upon when making decisions unique to your circumstances.
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