Early Super Access During COVID - Things To Consider

Early Super Access During COVID – Things To Consider

Early Super access – it’s been splashed across news headlines and on financial news websites, but what does it mean and is it a good idea?

The Continued Impact of COVID-19

The impact of the Coronavirus (COVID) pandemic will undoubtedly be felt for many years to come. In fact, some experts have predicted that the virus will change how we live entirely; with new procedures for how we travel, where we work and when we gather. Though, for some, planning for the future is somewhat of a luxury given the impact that the virus has had on many working-class Australians. As estimated by the Australian Bureau of Statistics, there were as many as 2.7 million Australians who were affected by either job loss or reduced working hours between March and April 2020. 

In response to the sheer amount of people affected, the Australian Government has introduced a number of new schemes aimed at alleviating some of the financial pressure caused by the virus. These include two new schemes, JobSeeker and JobKeeper, and the opportunity for people to withdraw up to $20,000 tax-free from their super fund – $10,000 before June 30 and another $10,000 from July 1. It comes as no surprise that these efforts have served as a lifeline for those who have been severely affected, however, especially when looking at superannuation, there are some things that should be considered. 

Early Access to Superannuation

In order to avoid an inordinate amount of applications, there have been some restrictions put in place to inhibit the unnecessary withdrawal of superannuation. Within normal circumstances, an early superannuation payout may only be released during one of the following circumstances:

  • Compassion – Where-in the applicant needs to cover medical, funeral or disability associated expenses or requires the funds to stave home repossession.
  • Financial Hardship – The applicant has proven they are unable to meet reasonable and immediate family living expenses.
  • Terminal Illness – It can be proven that the applicant is suffering from a terminal illness or injury that will likely result in death within the following 24 months. 

As mentioned, however, these restrictions have since been temporarily replaced, meaning that both permanent and temporary residents will be able to withdraw up to $10,000 before June 30 and another $10,000 from July 1. In order to be eligible for an early release, one would need to meet one of the following requirements:

  • Currently unemployed;
  • Eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment, special benefit or farm household allowance;
  • Was made redundant or had working hours cut on or after 1st of January 2020;
  • A sole trader that has experienced a reduction in turnover of 20% or more on or after 1st January 2020.

For further clarification on the exact restrictions for each release requirement, we would recommend you visit the Australian Taxation Office’s website on the matter.

Early Release: Some Things to Consider

Though the immediate benefits of an early release are quite evident, a number of financial authorities have spoken out, warning against unnecessary withdrawals. One such authority is the AIST’s Chief Executive, Eva Scheerlinck. When talking to Industrial Relations Claims, Eva shared, “We’re not making a $10,000 decision here. We’re making a decision that impacts on our retirement to thousands of dollars.” It is this sentiment that needs to be considered. 

When superannuation is taken early, the amount that can be earned over the life of the account can significantly reduce. This is due to the fact that interest earned is compounded on the balance of a super account. If the balance is prematurely drawn on, it reduces the amount of interest an account can accrue over its lifetime. Industry SuperFunds has released a model that estimates a reduction of $79,393 in the total amount earned if one was to withdraw $20,000 at the age of 30. If you are younger or have a relatively low super balance, this amount could be even higher. 

If you currently have life insurance through your super, this could also be one other thing to consider. According to ASIC’s MoneySmart, up to 70% of life insurance holders hold it through their super. If the super balance falls too low, this could lead to one losing their life insurance cover. If you are looking at withdrawing, check with your provider to see whether you’ll be affected.

Early Super Access: Talk to a Professional

If you are seriously thinking about withdrawing from your super fund, we would definitely suggest that you consider all your options. After weighing up the options, we would also recommend seeking professional financial advice. ASIC’s MoneySmart has some great information on super withdrawals. For more bespoke advice, the National Debt Helpline offers a free counselling service over the phone. You can also consult professional financial advisors and accountants. Withdrawing from your super is a big decision, and should not be made lightly. 

Beware of Scams

Since the introduction of the early-release scheme, there has been an alarming rise in COVID-related scams. This is especially worrisome as it would seem these scams have been directly targeted at those who have been adversely impacted by the virus. In fact, there has already been a reported loss of $1.11 Million due to such scams, as noted by ScamWatch. With this, it comes as no surprise that it is now more important than ever to be vigilant in detecting these types of scams and protecting your personal information. 

Most people are aware of the common scam tactics employed by such organisations, however; with the continued evolution of technology, there may be some instances where even the most diligent of individuals are caught out. One of the most common types of scams are messages disguised as government communication. This often includes fake ATO, MyGov and state government texts and emails. These will often be followed up with a fake website designed to imitate the relevant authority. 

Along with this, there have also been a number of reports regarding scammers posing as superannuation representatives, in which they will attempt to help an individual with early access to their super. To protect yourself from such scams, we have a few recommendations that you could employ: 

  • Do not click hyperlinks located in unsolicited emails and text messages. If need to contact the relevant organisation, search their contact information online.
  • Be wary of unsolicited calls. If you feel that the call is suspicious (such as they are probing for sensitive information), hang up the call immediately and contact them back through an official channel.
  • If it’s too good to be true, it probably is. This is really self-explanatory, though, if you receive a message advising that you have won a large sum of money, this is a scam. If you receive a letter from a long lost cousin who needs help with withheld funds, this is a scam.
  • If you regularly access sensitive information through the internet, such as internet banking or utility accounts, it is important that you have different login credentials for each site. This is so that if one is compromised, the attacker will not be able to access your other accounts. For especially important accounts, we would also recommend changing your password every 3  – 6 months. 
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Andy Andy

AUTHORITATIVE SOURCE

Andrew Bell

Since founding Nifty in 2016, Bell has continued to make waves within the local financial sector for his continued ambition and willingness to adopt emerging technologies.

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