Should I get early access to super?

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Early access to superannuation is a hot topic right now. Reports range from Aussies accessing super for legitimate purposes like food and rent, to some more extraordinary claims of new cars, televisions and even facelifts being funded out of super.

The new super rules, brought in to fight the economic impacts of the coronavirus, makes accessing super early easier than ever before. Figures show many Australian’s have made the decision to dip into their super, but is it the right one?

There have been 2.54 million applications for early release of superannuation since the new coronavirus scheme was announced.

- Australian Prudential Regulation Authority (APRA)

The average request for funds thus far has been $7,511 out of a possible $10,000. This represents over $19 billion being released from superannuation in a matter of months. Round one closed on 30 June and round two is now open with another $10,000 available before 24 September 2020. Initial data shows many of round one applicants have already returned for round two.

To grasp what accessing super early means, it helps to understand superannuation a little better. Let’s take a step back and understand why compulsory superannuation began in the first place.

Superannuation – a quick recap

Compulsory contributions to super came into effect in Australia in 1992. The ‘Superannuation Guarantee’ meant employers must pay a portion of an employee’s wages into superannuation. This was made inaccessible by the employee until they reach their relevant retirement age, known as the ‘preservation age’. The overall goal of superannuation is to help individuals to self-fund their retirement rather than rely on the government aged pension.

The argument for accessing super early

The overwhelming argument for early access is that superannuation is your money. You earned it, you decide how to spend it, right? Saving for a distant goal, often many decades in the future, is hard for many people to rationalise when they have urgent bills to pay, and a life to live, today.

Everyone can do with a little extra cash from time to time. Particularly in extreme circumstances when a job is lost or a severe illness affects your ability to earn an income. Rather than re-adjust your lifestyle, an extra injection of cash may carry you over a temporary bump in the road.

The argument against accessing super early

The key to superannuation success is time. Regular tax-free contributions over many years with a solid long-term investment strategy makes superannuation one of the most effective ways create wealth. Every dollar removed from super early has a cumulative effect on the value created to support your lifestyle in retirement. This is why the whole success of superannuation system relies on it being compulsory and making access to early withdrawals limited.

The added argument why superannuation should be left alone right now is that you will effectively be cashing out your hard earned super at the very bottom of the market. You super balance goes up and down with the market so with most super balances currently low, you limit the growth potential when the market recovers. This withdrawal now will make a more devastating dent in your long-term wealth and retirement well-being.

Am I eligible to access super due to COVID-19?

Regardless of your views on super, there are still eligibility criteria you need to meet in order to withdraw super early under the new coronavirus early access scheme.

To be eligible, you must be a citizen or resident of Australia or New Zealand and be either:

  • Unemployed
  • Receiving either JobSeeker, Youth allowance, Parenting payment, Special benefit or the Farm household allowance.
  • Been made redundant, had working hours reduced by more than 20% or were a sole-trader and your business had turnover reduced by more than 20%

No specific evidence of hardship is required to apply. However, this can be checked retrospectively by the ATO using a number of sources. Severe financial penalties apply for claiming for super without justification.

How else can I access my super early?

Outside of the coronavirus, there have always been circumstances, each with their own conditions, where withdrawing super early may be possible. This can include being diagnosed as temporarily, permanently or terminally ill, medical expenses for yourself or a dependant or severe financial hardship. This may be either governed by your super fund or by the ATO.

What options do I have without touching my super?

If you are needing urgent access to cash during the downturn there are many things you can do before pulling the lever on the superannuation release valve. This can include reviewing all expenses, requesting repayment holidays on any outstanding loans or selling unnecessary household items. You may also be eligible for many government support payments or even personal insurance cover offered as part of your super fund policy.

Get the right superannuation advice

For help deciding if early access to super is right for you, or to get help in identifying relevant options to release cash, talk to us. Our financial planning team know all about superannuation and other options you might have to support you through difficult times.

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