On March 22, the Federal Government has announced people facing significant financial hardship as a result of the Coronavirus may be able to access a portion of their super early. It’s a temporary measure to help people at this stressful time. The measure passed the House of Representatives on 23 March, and the legislation came into effect on the 25 March 2020. This measure is an extension of existing provisions which allow early access to super, for those financially impacted by Coronavirus, as per the eligibility requisites.
But how much are you able to access? Who exactly can access it? And perhaps most importantly, how accessing it now may impact your retirement savings? We look at some of the key points to consider.
Learn more about managing your finances in a COVID-19 world or speak to a financial adviser.
How much super can individuals who are eligible access?
Super is meant for your retirement, and there are limited circumstances under which you can access any of your savings before retirement. This temporary measure will allow eligible individuals to access up to $10,000 of their super in the 2019/20 financial year and a further $10,000 in 2020/21 financial year.
Applications for the first $10,000 were available from 20 April 2020 until the 30 June 2020. A second application can be lodged from 1 July for another single lump sum up to $10,000. Applications for the 2020/21 financial year need to be made by 31 December 2020.
People withdrawing their super as part of this measure won’t pay tax on any amount released and the money withdrawn will not affect Centrelink or Veterans’ Affairs payments.
Can early access to my super impact my retirement?
This early access is estimated to put up to $27 billion back into the pockets of Australians who have been financially impacted by the coronavirus.
“This is the people’s money and will benefit the sole trader or casual whose work hours or income has reduced by 20%+ since Jan 1,” posted Federal Treasurer Josh Frydenberg on Twitter after the announcement was made.
Accessing your super early will naturally have an impact on your retirement savings, so it’s recommended as a last resort.
We estimate the long-term impact to look like this:
|Age||Amount accessed early||Reduction in balance at retirement age1*|
*These results have been generated using the ‘Super withdrawal estimator’ available on the ASIC MoneySmart website at https://moneysmart.gov.au/covid-19/accessing-your-super. The estimates are based on assumptions including a retirement age of 67, a gross investment return of 7.5% pa, tax on earnings of 7%, investment fees of 0.85% pa, income of $50,000 and an initial inflation rate of 2.5% pa with a growth rate of 1.5% pa. All results are shown in today’s dollars. Additional assumptions are outlined in the ‘Super withdrawal estimator’. The above table is provided for illustrative purposes only and is not specific to the fees and costs of a particular financial product. Investment returns are not guaranteed.
These are just examples, but they do show the impact of accessing funds early can have on your future balance.
According to the ASFA retirement standard index, a couple would need a super balance of around $640,000 for a comfortable retirement (assuming they’re aged between 65 and 85, have earned 6% pa on their super fund, and own their home outright)2. Super is meant to be a vehicle towards earning the kind of retirement you want—it should be drawn down on cautiously.
“Early access to retirement savings should be considered only when all other options have been exhausted,” says Helen Murdoch, MLC’s General Manager of Corporate Super.
But you should also consider all the effects of withdrawing from your retirement savings early, including withdrawing at the bottom of the market.
“Withdrawing funds from your super could have a significant impact on your retirement savings, further compounded by the recent investment market downturn,” says Helen Murdoch.
When people withdraw their super after investment markets have fallen, the part they withdraw won’t have the potential to grow in value when markets eventually return to their long-term growth trend. Recoveries can take weeks, months or even years and no-one knows how long before markets will recover from the economic shock of the coronavirus.
With interest rates at record low levels and with many governments developing support packages, it’s expected that companies will again start making profits, and markets will eventually rebound when the uncertainty passes. This was the trend after the previous SARS epidemic, and after the Global Financial Crisis.
“Younger people have time to recover and replenish their super but the older you are, the greater the risk that your retirement savings may fall short of your goals. In that case, you may need to consider working longer to recoup these losses,” explains Helen Murdoch.
If you do need to make a withdrawal however, it is also important to remember that when your circumstances improve, and your cash flow returns to a more manageable level, there are some great ways to boost your super savings back up. There may be a range of additional benefits available for you, including tax deductions and the Government co-contribution.
Other ways to find support
Over the past two weeks, the Government has announced two economic stimulus packages to reduce the economic impact of the Coronavirus—with a total of $320 billion being injected into the economy to help keep Australians in work and keep businesses running. Many Australians currently face, or may soon face, real financial hardship. But before accessing your super, it’s worth exploring other sources of emergency funds announced as part of the Government’s Coronavirus support packages for individuals and households.
It‘s important to remember that super is a long-term investment and you should carefully consider your individual circumstances before you make any decisions in response to the current situation. We strongly encourage you to speak with your financial adviser, or if you don’t have a financial adviser, please call us on 132 652 if you wish to discuss your options.
A reminder about who is eligible to access their super under this measure
To be eligible, you must satisfy any one of the following requirements:
- You’re unemployed.
- You’re eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment or other special payment.
- After 1 January 2020:
- you were made redundant
- your working hours were reduced by 20% or more, or
- as a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.
If eligible, you’ll be able to apply for early release of super from 20 April 2020 directly to the ATO through your myGov account at my.gov.au.
The ATO will then assess your application and once they confirm this, they will send both you and your nominated super fund a determination to allow the funds to be paid to the bank account you nominated on your application.
You can also find further information on the application process on the ATO website, which can be accessed through following link.
Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at 2 April 2020 and may be subject to change. The information in this article is general in nature and does not take into account your objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. An investment with NULIS is not a deposit with, or liability of, and is not guaranteed by NAB or other members of the NAB Group. Opinions constitute our judgement at the time of issue. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the NAB Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication. Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.
1Estimates based on a super balance on $100,000, with a 6% p.a. rate of return on their super fund after fees and costs.