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 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.
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:
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:
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.
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.
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.
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:
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.Read More