5 things to know if you're thinking about making a second super withdrawal

5 things to know if you're thinking about making a second super withdrawal

As the end of the financial year approaches, so too does the second round of early superannuation withdrawals.

For those whose livelihoods have been significantly impacted by COVID-19, the government scheme, which allows for the early release of super, has been a desperately needed lifeline.

More than 2 million Australians have taken $15.9 billion out of their superannuation funds between late April, when the scheme started, to June 14, according to the latest figures from Australian Prudential Regulation Authority.

Affected individuals can take out up to $10,000 from their nest eggs in the 2019-20 financial year and another $10,000 in the following fiscal year. Temporary residents can only apply in the first round of the release, which closes on June 30.

And with the latest unemployment rate surging to 7.1 per cent in May, the highest Australia has seen in nearly 20 years, it won’t be a surprise to see consistent, if not more, super withdrawal applications in the next few months.

Women and younger workers are bearing the brunt of the declining labour market, the Australian Bureau of Statistics noted.

If you’re considering taking money from your super a second time, or even if you’re thinking about it for the first time, there’s a few things you should know before you take action.

1. Go through other financial assistance options – It’s been advised by superannuation experts that withdrawing from super should be a last resort for anyone affected by the pandemic. While the withdrawals won’t incur tax or affect a person’s welfare payments, tearing thousands of dollars out of your super now may mean bigger losses in the long run. Compound interest, combined with potential investment returns over time, are key to growing your retirement savings. The more you take from your super in your working years, the less you may have when you retire. So, it’s best to consider what other financial assistance options, including government payments and your bank’s hardship relief, are available to you before touching your nest egg.

2. Check if you’re eligible – Before you apply to access your super, make sure you can prove that you’re eligible. If the Australian Taxation Office finds that your application is ineligible, the amount paid to you may become assessable income, which means you may need to pay tax on it. Plus, you might be slapped with a hefty fine. 

To be eligible for the second-round release of super, you must:

  • Be a citizen or permanent resident of Australia and New Zealand (temporary residents are only eligible in the first round).
  • Genuinely need to access your super for financial help related to the economic impacts of COVID-19.

One of the following must also apply to you:

  • You’re unemployed;
  • You’re eligible to receive a JobSeeker payment, youth allowance for job seekers, parenting payment (single and partnered), special benefit or farm household allowance;
  • You were made redundant on or after January 1 2020;
  • Your working hours were cut by 20 per cent or more on or after January 1 2020;
  • For sole traders, your business was suspended, or your turnover was reduced by 20 per cent or more on or after January 1 2020.

3. Apply before the deadline – The time is ticking for the first round of super withdrawals. But if you desperately need to dip into your nest egg in the next financial year, you’ll want to be prepared. For Australian and New Zealand citizens and permanent residents, you have between July 1 and September 24 to apply for the second-round release of super. If you’ve already withdrawn from your super in the 2019-20 financial year and you want to do so again in 2020-21, you’ll need to make a separate application for the second payment. Consider seeking financial advice before applying to withdraw from your super.

4. Consider recontributing – Taking money from your nest egg now may reduce your future retirement income. If you do need to access your super now, it’s a good idea to think about how you might top up your retirement savings when you become more comfortable with your financial situation. To help you estimate the impact of additional contributions on your super, you can use MoneySmart’s superannuation calculator.

5. Budget – Your super is supposed to be the money that supports you after you retire. If you desperately need to use that money now, it’s best not to waste a cent of it. One option is to plan ahead and make a careful budget for the funds to make sure you’ll put it to good use. Another option to consider is to build an emergency fund with the money, which can be used when an unexpected expense comes up, or if something happens to your source of income (i.e. you lose your job, or your working hours are cut).

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Learn more about superannuation

How much is superannuation?

Superannuation is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How do you calculate superannuation?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How is superannuation calculated?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.

How does superannuation affect the age pension?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

What happens to my superannuation when I change jobs?

You can keep your superannuation fund for as long as you like, so nothing happens when you change jobs. Please note that some superannuation funds have special features for people who work with certain employers, so these features may no longer be available if you change jobs.

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.

What is lost superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

How much extra superannuation can I add to my fund?

There is an annual limit of $25,000 for concessional contributions – that is, money paid by your employer and extra money you pay into your account through salary sacrificing. There is also a limit on non-concessional contributions. Australians aged between 65 and 74 have a limit of $100,000 per year. Australians aged under 65 have a limit of $300,000 every three years.

How do you find lost superannuation funds?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

What are personal contributions?

A personal contribution is when you make an extra payment into your superannuation account. The difference between personal contributions and salary sacrifices is that the former comes out of your after-tax income, while the latter comes out of your pre-tax income.

How much superannuation should I have at age 40?

The amount of superannuation you should have at age 40 is based on how much money you need to have at retirement. That, in turn, is based on how much money you expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

 

 

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

When did superannuation start?

Australia’s modern superannuation system – in which employers make compulsory contributions to their employees – started in 1992. However, before that, there were various restricted superannuation schemes applying to certain employees in certain industries. The very first superannuation scheme was introduced in the 19th century.