Extraordinary times call for extraordinary measures. Sometimes, those measures receive an extraordinary response, as is the case with the Australian Government’s decision to allow workers to dip into their superannuation funds during the coronavirus (COVID-19) crisis.
Yesterday, Treasurer Josh Frydenberg announced the Government has approved 456,000 applications for early access to superannuation. A whopping $3.8 billion is slated to leave super funds over the next few days, giving punters access to cash which might have been locked away otherwise.
JUST IN: The ATO has approved 456,000 applications from people wanting to access superannuation early, says Treasurer Josh Frydenberg. @CUhlmann breaks down the numbers. #AusPol #9News pic.twitter.com/rvSDpE2HAj
— Nine News Australia (@9NewsAUS) April 23, 2020
I am certainly not offering you all financial advice, but here’s what you need to know about the whole deal so you can ponder if dipping into those funds might be the move for you.
What is superannuation?
Superannuation, or super, is your retirement fund. Employers are required to scoop a portion of your paycheque and place it into your super account, which is then invested by your chosen super fund. In ideal circumstances, the fund grows as you progress through your working life, leaving you with a stash of money to use in retirement.
In most circumstances, the Government and super funds make it difficult – and in some cases, illegal – to access the money in your super account before you retire. This is to ensure you have as much cash as possible when you hang up your boots.
What’s the new deal?
In response to financial hardships brought on by the pandemic, the Government introduced a new policy allowing people to dip into their super accounts for early access to their cash. Eligible folks can withdraw up to $10,000 before June 30, and an extra $10,000 from July 1 to September 24.
You can catch the full eligibility requirements here. As Frydenberg pointed out, the scheme has proven immensely popular.
What’s the benefit?
Well, you can do a lot with $10,000. You could secure groceries for the foreseeable future, book that dental work you’ve been putting off, or divvy it up to friends and family in need of financial assistance. That versatility is the point, really: it’s your money, you can just use it now.
Theoretically, you could also use it to pay your rent or service a mortgage repayment, but you should really, really think it through first. More on that later.
So, there are downsides?
Potentially. Every dollar withdrawn from your super account is a dollar which won’t earn interest in your super fund. But super funds also slap on compound interest, meaning you earn interest on your interest.
Think of superannuation as a snowball rolling down a hill. If you let it roll, it should grow pretty huge by the time it hits the bottom. But, if you stop it halfway and dust off some snow, it might not grow anywhere near as large as it would have otherwise.
In the same way, taking $10,000 out of your super account now might mean missing out on much more in the future.
The Government’s official MoneySmart site has a basic calculator to help you determine how today’s alterations to your super balance could impact your retirement fund.
Check it out – and maybe contact your super fund for more specific and personalised information on how changes could effect you.
So, is withdrawing super the right move?
Well, there’s a lot to think about before making that decision.
You’re eligible to dip into your super if you’re unemployed, or if you’ve recently lost 20% of your standard working hours or more.
But you’re also free to withdraw from your super account if you’re entitled to the JobSeeker payment, Youth Allowance, or a parenting payment.
If you haven’t done so already, it might be worthwhile checking out if you can apply for those payments before thinking about your super.
There’s also the Job Keeper payment, which might help your employer keep you on the books during the crisis.
What if I really need to make rent, or service my mortgage payments?
Well, the Australian Securities and Investment Commission (ASIC), the government watchdog which oversees our super system, has warned real estate agents and landlords against pushing tenants to access their super early when it’s not in their best interest.
In a sternly-worded letter, Tim Mullaly, ASIC’s Executive Director of Financial Service Enforcement, said offering dodgy and unlicensed financial advice could breach Australian law.
Separately, Prime Minister Scott Morrison has urged tenants, landlords, and banks to “sit down” and “work out” compromises on rental payments during the financial squeeze.
What do super funds reckon about the whole situation?
Look, super funds don’t invest your retirement funds out of the goodness of their own hearts. They take a commission for the privilege, and it’s in their financial interest that as much money stays tucked away as possible.
Already, super funds are contacting members urging them to take informed decisions about the whole deal. ASIC has also advised trustees to offer “clear, accurate, balanced” information so workers don’t make a decision they may later regret.
Right, I’ve decided I still want to go ahead with it. What now?
Citing a survey from Industry Super Australia, Guardian Australia reports folks under 40 were twice as likely to say they’d access the scheme than those over 40. We also know the financial downturn caused by the pandemic is smashing industries largely populated by young people.
It’s rough right now, and the need for liquid cash is obvious.
I’m not an expert on all of this. I am just some guy with a working internet connection, and I’m certainly not giving you any financial advice.
You will want to talk this through with your super fund first, and talk to a licensed financial advisor who knows about your personal circumstances before making any big decisions.
If you’d like to access your super, access the official Australian Taxation Office portal through your myGov account, and contact your super fund directly to advise them of your decision.
Outside of a trusted financial adviser, tell any other third party seeking access to your details to go and get lost – this is between you, the government, and your super fund, and nobody else.