Early access to superannuation is one of the measures the Federal Government has introduced to help people who have been financially affected by the COVID-19 pandemic.
The rules mean people who are eligible will be able to apply to access $10,000 from their super fund between now and 30 June 2020 and a further $10,000 between 1 July and 24 September 2020. If you do access these funds, you won’t need to pay tax on this money or declare it in your tax return.
With many people feeling uncertain right now, it can be tempting to draw on your super as a safety net. But withdrawing money from your super account before you retire can mean you have much less to live on when you leave work for the last time. So before taking any action, make some time to understand how this could impact your financial future.
The first step is to understand whether you are eligible to access your super early. To be eligible, you need to have been impacted by the COVID-19 environment and be an Australian citizen or permanent resident who is:
There are other criteria that determine whether you qualify. You may be able to access your super early if you were made redundant on or after 1 January 2020, or your working hours have dropped by 20 per cent or more since then. You can also apply to access your super early if you’re a sole trader and your business turnover has dropped by 20 per cent or more, or if your operations have been suspended.
Some temporary residents can also access $10,000 from their super. You may be in this category if you’ve held a student visa for more than 12 months and you can’t pay for your living expenses. Skilled workers on a temporary visa who are still employed but can’t pay for their daily living requirements may also be in this group.
Taking money out of your super fund now may mean you retire with a much smaller super balance down the track. That’s because the power of compound returns means the more you have in your super fund and the longer you leave it there, the more you will have later in life.
Also be aware that scammers have been pretending to be from the ATO and super funds, offering fund members access to their retirement savings. These criminals are stealing personal information and super money. Contact the ATO if you are concerned you have been targeted by a scammer.
It’s important to consider all your options before deciding to draw on your super, including the full range of measures the Federal Government and banks have announced to assist people who are suffering financial hardship as a result of the pandemic. These include:
Make sure you have explored all these initiatives before you decide to access your super.
It’s natural to feel concerned about cash flow now, but it’s even more important to think through whether you really need the money before you decide to take cash out of your super fund.
There may be other sources you could use before accessing your super money, including dipping into your savings or other investments.
It’s important to consider these avenues as many people’s super balances have dropped due to recent share market falls. Keeping more money in your super means that you have more available to invest for your financial future for the long term.
Many people hold income protection and life and total permanent disability insurance policies inside their super funds. Depending on the balance of your superannuation account, withdrawing money early can affect your insurance cover and in some cases, cancel it completely.
Your insurance policies may be cancelled if you withdraw funds from your super that results in the balance dropping to zero or if your balance is below $6,000. New rules also mean your insurance policies may be cancelled if you don’t contribute to your super fund for 16 months.
Therefore it’s important to think through the likely effects of withdrawing funds from your super that potentially affect the currency of your insurance policies. Your insurance may support your expenses should you be faced with an unfortunate incident like a serious illness or accident down the track that affects your ability to work.
Accessing your super may be the right choice if you need this money to pay for your day-to-day living expenses and you have no other options for generating income at this time.
But it’s essential to weigh up the advantages and drawbacks of all your options before you decide to apply for this money to be released. It’s also a good idea to talk to a financial adviser and ensure your choice is the right one for your circumstances.
For more information, visit our COVID-19 hub.
Next: Early access to super
3 By contacting your bank and making an application for assistance as a result of the pandemic
This article was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 14 May 2020.
This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. It does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information may contain material referenced from third parties and derived from sources believed to be accurate at its issue date. No company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. BT cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. As such, you should not place reliance on any such taxation considerations as a basis for making your decision with respect to the product.
For more detail, speak with a financial adviser or visit the ATO website.