Temporary early access to super due to COVID-19

Technical resource

As a result of COVID-19, eligible people may access up to $10,000 in 2019/20 and 2020/21 from super early. Here is a look at who and where it may help and things to consider.

Eligible individuals affected by the economic challenges posed by the spread of COVID-19 will be able to access up to $10,000 in 2020/2, specifically between 1 July 2020 and 31 December 2020.

Whilst it could be argued that doing so is undesirable due to the adverse impact to a client’s retirement savings, there are many who if eligible will prefer to take advantage of this opportunity to meet their immediate cash flow needs, or repay debt. 

Eligibility criteria

To qualify, an individual must satisfy at least one or more of the following requirements:

  • They are unemployed, or
  • They are eligible to receive JobSeeker Payment, Youth Allowance for job seekers, Parenting Payment (which includes the single and partnered payments), Special Benefit, or Farm Household Allowance, or
  • On or after 1 January 2020:
    • They were made redundant, or
    • Their working hours were reduced by 20% or more, or
    • If they are a sole trader, their business was suspended or there was a reduction in their turnover of 20% or more.

Application and release process

Applications must be made directly with the Australian Tax Office (ATO) via the myGov website. An applicant can apply by selecting their superannuation fund, supplying their bank account details and self-certifying which of the eligibility categories they satisfy. Superannuation funds are not able to directly receive applications.

After the ATO has processed an application, they will issue the applicant and their chosen superannuation fund with a determination. Upon receiving the determination from the ATO, the superannuation fund will then deposit the amount withdrawn into the applicant’s bank account. Applicants are not required to provide any additional information to their superannuation fund.

Withdrawals using this condition of release can only be made from the accumulation phase. Those who only have funds in pension phase, including transition to retirement account based pensions (TtR ABP’s) must first rollover their funds to the accumulation phase in order to access their money.

This process also applies to self-managed super funds (SMSFs), except that the applicant in their capacity as trustee/director of the corporate trustee, is also responsible for processing the payment once the SMSF receives the determination from the ATO. Prior to releasing the funds, SMSF trustees should ensure that their SMSF’s trust deed permits such withdrawals. 

If an eligible applicant elects to release less than the full $10,000 in a financial year, they will not be able to make another application for the same financial year.

Tax and Social Security assessment

Those who access their funds under this new temporary and limited condition of release will receive the amount tax free regardless of their age or the underlying components of their superannuation account.

The withdrawal is not assessed for Social Security purposes, however whilst the funds remain in a financial investment such as a bank account, they will be assets tested and deemed for the income test going forward.

Case studies

Case study 1 – Client who wishes to access funds to repay debt

Heather is aged 61 and single. She is currently seeking gainful employment and receiving JobSeeker Payment from Centrelink.

Heather’s only asset is a TtR ABP which is currently valued at $200,000 and she is already drawing the 10% maximum as a pension.

As the interest charged on her $25,000 credit card debt is much higher than the expected earnings rate of her TtR ABP, Heather accessed $10,000 of her superannuation during 2019/20, and will access a further $10,000 on 1 July 2020. Heather can use these funds to repay most of her credit card debt.

As Heather is receiving JobSeeker Payment she is eligible for this measure. However as her only superannuation monies is a TtR ABP, she first must establish a superannuation accumulation account and rollover $20,000 from her TtR ABP to accumulation phase. Given the accumulation account is only being established for a short period of time to facilitate these withdrawals, she decides to invest these funds in the cash investment option.

Case study 2 – Client not eligible who should consider alternatives

Peter is aged 34 and single with a large mortgage. Since 1 April, his employment has been reduced from 10 days per fortnight to 9 days per fortnight for the foreseeable future. During this time Peter will earn a salary of $3,000 per fortnight and his employer satisfies the eligibility criteria to receive JobKeeper Payment. As a result of the reduction to his salary, Peter is having difficulty meeting his cash flow requirements.

Peter is not able to access his superannuation under this measure as he does not satisfy the eligibility criteria. His working hours have been reduced by less than 20% and he does not satisfy any of the other eligibility categories. This is the case even though half his of salary is government subsidised via his employer receiving a JobKeeper Payment.

Given he is not eligible to access his superannuation, Peter should consider alternative methods of meeting his cash flow requirements. These include:

  • Considering whether he can reduce the amount he spends on ‘day to day’ items such as take away food/drinks.
  • Contacting his mortgage provider to see if he is eligible for any relief measures or a loyalty discount on his interest rate.
  • Refinancing his mortgage with another provider to reduce his monthly repayments due to a lower interest rate and/or restarting the standard 30 year loan repayment period.
  • Contacting his utility providers to see if he is eligible for any relief such as the deferral of bills.

If Peter later satisfies a condition to access his superannuation, he can consider whether he wants to do so under this measure. For example, if his employment is further reduced to 8 days a fortnight on 3 August 2020, he can access up to $10,000 of his superannuation between 3 August 2020 and 31 December 2020.

Case study 3 – Client who needs access to funds for cash flow

Theo and Sandra are a married couple in their 30’s with a $1,000,000 main residence and a $800,000 home loan debt. Theo continues to be employed full-time, but on 30 March 2020 Sandra’s employment was reduced from 10 days a fortnight to 4 days a fortnight for the next 6 months. As a result of the reduction to Sandra’s hours they have a cash flow shortage of $1,000 per month, even after making various adjustments to their expenditure. They are seeking to withdraw from their superannuation in order to continue to meet their financial commitments.

Theo cannot access his super under this measure as he does not satisfy the eligibility criteria. Sandra is eligible, as her working hours have been reduced by 20% or more since 1 January 2020.

Sandra applied for the release of $10,000 from her superannuation fund for the 2019/20 financial year, which will enable them to meet their cash flow requirements. She could have elected to release $6,000 during 2019/20 but decided against this as she would not have been able to submit another application to release a further $4,000 during 2019/20.

Sandra considers the long term impact to her retirement savings, but decides that meeting her present financial commitments takes priority.

If she wishes, she could also withdraw up to a further $10,000 between 1 July 2020 and 31 December 2020 and retain these funds in her personal name in case her return to full-time employment is delayed. Alternatively she could use these funds for another purpose such as reducing her home loan.

In the future, once Sandra’s earnings return to pre-crisis levels, she has the option of making up for the impact of the withdrawal on her retirement savings by making tax effective voluntary concessional contributions. 

For more information visit our dedicated COVID-19 page for Advisers or the ATO’s dedicated page at ato.gov.au/​coronavirus

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