If you’re considering making a second application under the Coronavirus early release of super payment, there may be other options available that can help to cover your expenses now with a lower long-term impact.
Banking and finance sectors, in addition to the Federal Government, have introduced a number of financial relief packages to those impacted by the Coronavirus pandemic.
In this article, we’ll address what some of the alternative options are, depending on your circumstances, and why withdrawing from your super now can have a significant impact over the long-term.
The magic of compound interest
If you’ve already accessed $10,000 from your super as part of the first application, and are looking to take out another $10,000 in the second, this is what the reduction in your retirement savings could look like depending on your age.
These figures are based on the power of compounding returns which enables you to earn interest on interest accumulated over time.
Compounding returns are like planting a tree. When that tree grows, it produces seeds that allows you to plant other trees. Those trees will also grow and produce seeds of their own. So, with enough time, you could turn one tree into an entire forest.
Because the benefit of compounding returns is generally most effective over a long timeframe, in order to truly see its potential, the longer your money has time to grow, the better.
Selling your investments in a market downturn market
If you decide to take out your super during a market downturn, it’s important to consider the impact it will have on the potential value of your investments.
For example, if your shares were worth $2 last year, but are now worth $1, you may be selling them for half their potential value — a bit like selling your home during a property slump.
Other potential financial relief benefits available
Depending on your situation, a number of sources of financial assistance have become available to help people deal with the impact of Coronavirus.
Some of these may provide the same short-term financial relief as accessing your super, but with potentially less long-term impact to your retirement savings.
Financial and banking institutions
Some banks are now enabling customers to defer their mortgage repayments temporarily in addition to refunding late fees and interest for credit card payments.
It’s important to remember that while this option might help with your short-term cash flow, interest will continue to be charged to your outstanding loan amount – meaning more interest could be payable over the term of the loan. It’s also worth checking with your bank to ensure these offers apply to you.
Federal Government's economic response packages
The Government is supporting individuals and families affected by Coronavirus through a range of measures. Below we outline some which may benefit you.
1. JobKeeper Payment
Under the JobKeeper payment, businesses that meet certain criteria will be able to access a subsidy from the Government to help continue paying their employees. Eligible employers need to apply to the ATO for the payment on behalf on their employees.
By keeping employees ‘tied’ to their jobs, JobKeeper is designed to maintain employment. Typically getting people back into the workforce is one of the most difficult economic problems caused by recessions.
The JobKeeper program is available until 28 March 2021, with payments reducing over time from 28 September 2020 and paid at two rates. The two rates relate to whether you’re considered to be a full-time or part-time worker for this purpose, and is intended to be determined based on the hours you worked in the applicable test period. Depending on your circumstances, this test period will be either February or June 2020. Full-time workers are those who have worked 20 hours or more in the applicable test period.
From 28 September 2020 to 3 January 2021:
- the payment rate will fall to $1,200 each fortnight for full-time employees, and
- $750 each fortnight for part-time employees.
From 4 January 2021 to 28 March 2021, the JobKeeper payment rate will be:
- $1,000 each fortnight for full-time employees.
- The rate for part-time employees will fall to $650 each fortnight over this period.
2. Income support for individuals
The Government has implemented a number of temporary measures to enable more people to access some social security benefits and concessions. This includes temporarily relaxing some of the eligibility criteria for certain payments.
The Coronavirus supplement also temporarily increases the total payments available to eligible social security recipients.
- Payment of the Coronavirus supplement of $550 per fortnight for those already receiving a qualifying income support payment continues until 24 September 2020.
- From 25 September 2020, the supplement will reduce to $250 per fortnight and continue to be paid until 31 December 2020.
The supplement is taxable and is paid automatically to people receiving an eligible payment or benefit. The list of qualifying income payments is available here.
If you’re receiving JobKeeper payment from your employer, this must be declared as income if you’re applying for or receiving any payments or benefits.
3. Economic support payments for pensioners
Two payments of $750 each were made to people receiving certain social security payments and eligible concession card holders. The first payment was made from 31 March 2020 and the second payment was paid around 10 July 2020.
Importantly, these payments are not taxable and don’t count as income for the purposes of social security, Farm Household Allowance and veteran payments.
4. Temporary reduction in minimum pension drawdown rates
The Government has also temporarily reduced minimum drawdown requirements for account-based pensions and some other super income streams by 50 percent for 2019-20 and 2020-21.
If you’re able to reduce your pension payments, this measure may mean you don’t need to sell investment assets to fund minimum drawdown requirements. It also provides your investments with the opportunity to recover from the recent market downturn.
5. Reducing social security deeming rates
When calculating your income for certain social security payments and benefits, the deeming rate is applied to determine the rate of return that the Government assumes your financial assets earn.
As of 1 May 2020, the deeming rates were reduced by 0.75 percent, so if your entitlement is determined under the income test, this means you may start to receive an increased payment from Services Australia or the Department of Veterans Affairs. This increase will be calculated and paid automatically.
Alternatively, where you previously didn’t qualify because of the income test, you might now be eligible for a payment or concession.
How a financial adviser could help you
People often call on the expertise of financial advisers at especially stressful times in their lives, like what we’re currently experiencing now due to the Coronavirus pandemic.
Financial advisers can help with everything from budgeting, to loan management and consolidation to reduce repayments, as well advising on whether accessing the government’s early release of super may be a good idea for you.
- "Protecting yourself from super and investment scams" (article)
- "Managing your super in a market downturn" (article)
*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.
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 August 2020 and may be subject to change. This information may constitute general advice. The information in this article is factual in nature and does not take into account personal 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.