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

Can I take money out of my superannuation fund?

Superannuation is designed to provide Australians with money in their retirement. The government has strict rules around when people can take that money out of their fund because it wants to prevent people eroding their savings before they reach retirement.

As a general rule, you can only take money out of your superannuation fund when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

That said, you can take money out of your superannuation fund early based on one of these seven special conditions:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia

How much is superannuation in Australia?

Superannuation in Australia 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 I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

Do I have to pay myself superannuation if I'm self-employed?

No, self-employed workers don’t have to pay themselves superannuation. However, if you do pay yourself superannuation, you will probably be able to claim a tax deduction.

When is superannuation payable?

Employers must pay superannuation at least four times per year. The due dates are 28 January, 28 April, 28 July and 28 October.

What is MySuper?

MySuper accounts are basic, low-fee accounts. If you don’t nominate a superannuation fund, your employer must choose one for you that offers a MySuper account.

MySuper accounts offer two investment options:

  1. Single diversified investment strategy

Your fund assigns you a risk strategy and investment profile, which remain unchanged throughout your working life.

  1. Lifecycle investment strategy

Your fund assigns you an investment strategy based on your age, and then changes it as you get older. Younger workers are given strategies that emphasise growth assets

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.

When did superannuation start in Australia?

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.

What are the age pension's residence rules?

On the day you claim the age pension, you must be in Australia and you must have been an Australian resident for at least 10 years (with no break in your stay for at least five of those years). The following exceptions apply:

  • You’re exempt from the 10-year rule if you’re a refugee or former refugee
  • You’re exempt from the 10-year rule if you’re getting Partner Allowance, Widow Allowance or Widow B pension
  • You can claim the age pension with only two years of residency if you’re a woman whose partner died while you were both Australian residents
  • You might be able to claim the age pension if you’ve lived or worked in a country that has a social security agreement with Australia

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

How much superannuation should I have?

The amount of superannuation you need to have at retirement is based on how much money you would 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

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.

How can I keep track of my superannuation?

Most funds will allow you to access your superannuation account online. Another option is to manage your superannuation through myGov, which is a government portal through which you can access a range of services, including Medicare, Centrelink, aged care and child support.

How do you access superannuation?

Accessing your superannuation is a simple administrative procedure – you just ask your fund to pay it. You can access your superannuation in three different ways:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

However, please note that your superannuation fund will only be able to make a payout if you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

The preservation age has six different categories:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

There are also seven special circumstances under which you can claim your superannuation:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia