The Government recognises that superannuation is a savings plan for retirement however the Coronavirus has significantly financially affected many individuals.

It is believed that the benefits of providing some relief to these individuals by allowing early access to retirement savings can greatly outweigh the benefits of the super funds remaining untouched until retirement. Superannuation is a long-term strategy and the current economic market has seen a significant reduction in super balances, although highs and lows are normal investment behaviour. With the current volatile market, it can be tempting to take advantage of this option and withdraw some of your super, however careful consideration should be made before utilising the early access option and individuals should ensure they explore all other assistance options first.

Benefits

• Up to $10,000 can be applied to withdraw from your superannuation fund from mid-April to the end of June. A further maximum $10,000 can be applied for after the 1^st July for approximately three months
• The funds are free to spend how you wish, you can also hold onto the funds and reinvest any unused portion back into your super fund when the market starts to improve
• The payments are tax free and will not affect any Centrelink or Veterans’ Affairs payments
• Receiving the additional funds can assist with economic stimulation with it being spent into Australian businesses
• The unknown market conditions could potentially take a long time to gain back the current super losses and in some individual’s situations, it may be better in their pockets now if they are struggling to maintain their current essential costs of living, including rent/mortgage payments, bills, food and other essential items. The benefits of providing better financial stability and mental health in this crisis period is believed to be significant
• The proposal is estimated to have minimal overall effect on the national superannuation savings pool in the mid to long term with an approximate 1% reduction
• If required to withdraw, self-managed super fund holders should look at accessing from their cash reserves before withdrawing from investments.

Negatives

• Withdrawing your superannuation from a fund that has little or no contributions or reduces your balance below the mandated $6,000 could result in automatic cancellation of your insurance. It is advised that you contact your superannuation fund to confirm your insurance risks and options
• This scheme forces super funds to sell their investments at the bottom of the market
• Withdrawals leave a reduced investment balance which otherwise would have provided for greater growth when the market starts performing positively
• The reduced investment is estimated to cause significant hits to retirement funding. Industry SuperFunds shows that based on previous analysis, a 30-year-old who withdraws $20,000 from their super now could lose around $100,000 from retirement, and a 40-year-old could lose more than $63,000
• Although the Global Financial Crisis caused Australian superannuation funds to drop between 2007 and 2009, by 2010 the total superannuation assets were back to the pre-GFC amount and strong performance showed significant increases since. With superannuation being a long-term performance strategy, it is likely that super funds will regain their losses and anticipate strong performance in the future.
• It is unknown how long this current economic situation will last however it is important to understand how your super funds are currently being invested and consider factors such as your age and super investment risk. You should contact your super fund to obtain advice and a beneficial investment mix
• Taking these withdrawals should be used as a last resort option in this economic crisis, after exploring all other options and government assistance.

Summary

The early access to superannuation option will provide much needed financial relief to individuals who have been significantly affected by the Coronavirus, such as income loss. Although intended for use for retirement, superannuation has long been available for individuals in eligible financial hardship. The reduced restrictions and ease of being able to access some funds now for those in need is in support of the purpose of aiding in the time of need with the current economic climate. Receiving these funds could mean more than just being able to pay your bills, provide food for your family and stimulate the economy, but also provide benefits to mental health which is known to have an increased impact in economic downturns.

However, it is important to utilise this option as a last resort and not as a free non-required cash injection to receive and spend if it is not needed. Superannuation is a long-term investment savings for retirement and withdrawing funds can have a high retirement impact. There are many financial assistance packages being released by the Government and these should be explored before removing your super. It is important to consider your individual circumstance and speak to your super fund provider to assess if accessing your super now is a beneficial option for you now and in the future.

Eligibility

The Australian Government has released that at least one of the following requirements is to be met to be eligible to apply:

• You are unemployed
• You are eligible to receive job seeker payments, youth allowance for jobseekers, parenting payment (single and partnered), special benefit or farm household allowance
• On or after 1^st January 2020:
• You were made redundant
• Your working hours were reduced by at least 20 per cent
• If you are a sole trader, your business was suspended or there was a reduction in your turnover of at least 20 per cent

Applying

• From mid-April 2020, you can apply directly to the ATO through myGov at my.gov.au and certify that you meet the above criteria
• Once the ATO pass your application, they will issue your superannuation fund with a determination to release your payment
• It is vital to wait until the changes are in place and applications are made correctly, as not following the right process may have significant tax and Medicare implications
• It is recommended you check your details with your superannuation early to ensure the correct personal and bank details are on held
• For self-managed superannuation funds there will be alternative arrangements yet to be released
• You can apply for less than $10,000 however there is a maximum of once claim for each financial year
• There is yet to be further clarification of any other eligibility requirements.

If you have further queries please contact our office.

*** Please note that this is not financial advice and we recommend you seek personalised advice from a registered financial advisor before taking any action***