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).