How Australians are spending their COVID-19 superannuation withdrawal

How Australians are spending their COVID-19 superannuation withdrawal

The people who dipped into their superannuation twice spent more money the second time round on groceries, paying down debt, clothing and more, according to an analysis of banking data.

Within two weeks of being granted access to as much as $10,000 of their superannuation, a relief measure sanctioned by the government to help with a loss of income during COVID-19, people were spending more money on essential items than they were on debt and discretionary purchases.

Dipping into retirement savings for a rainy pandemic

An approximate average of $3618 was spent in the first fortnight by the 1.1 million people who dipped into their superannuation a second time, according to analytics firm AlphaBeta and credit bureau Illion. This was $823 more than they had the first time they withdrew money from their superannuation account. 

More money was accessed on average, according to data collected by APRA. Second dippers accessed an average of $8487 of their super -- about a grand more than the average first superannuation withdrawal.

COVID19 ECONOMIC IMPACT REAL TIME TRACKING source alphabeta

The money was spent differently the second time around in two ways: more was spent on essentials -- supermarket shopping and groceries, car maintenance and petrol, clothing, etc -- and less was spent paying down debt.

Spending at supermarkets and on other groceries jumped by 65 per cent to $531-- up from $320. This was the biggest jump across all categories.

Paying down debts jumped 14 per cent to $450 -- up from $393, while car servicing and petrol costs shot up by 62.6 per cent to $388 -- up from $243.

A breakdown of the banking data reveals less of this money was being spent in three areas:

  • Gambling -- from $327 to $284
  • Phone and internet bills -- from $82 to $77
  • Apps, games and music -- $75 to $70

The ripple caused by dipping into superannuation

The money withdrawn from superannuation -- as much as $20,000 over two applications -- won’t be working on accumulating interest. How big of a hole will be left in people’s nest egg is the subject of heated debate. 

The Grattan Institute, a non-partisan think tank, recently released modelling that suggests most of the money lost will be offset by people being eligible for a higher pension rate -- in some cases.

If a 35 year old earning the median income were to withdraw $20,000 from their superannuation, their balance would be $58,000 less by the time they retired. 

But the Grattan Institute claims their income would trigger a higher pension repayment, resulting in about $34,000 being subsidised, and them being out of pocket $4000.

Grattan acknowledged the loss of income wouldn’t be offset in all cases, and said “the very lowest income earners will receive less extra pension to compensate, and will have less of a cushion”.

The Labor Party, which referred the government’s early release of superannuation scheme to the auditor general, claims people aged from 20 to 35 will be out of pocket the most as they shoulder the financial burden of COVID-19.

A 25 year old who withdrew $20,000 will be from $80,000 to $100,000 worse off in retirement, Stephen Jones said, shadow assistant treasurer and shadow minister for financial services, after taking into account the cost of inflation and living expenses.

A 35 year old would be $65,000 worse off, he said.

The ATO is ready to issue steep fines

The release of the superannuation payments was streamlined to help people access their money quickly, at a time when the coronavirus pandemic was causing cities across the country to enter lockdowns.

People who made a withdrawal from their superannuation when they weren’t eligible could face fines of up to $12,600, according to the Australian Taxation Office.

The money withdrawn will also become assessable income, have to be included in your tax return and have tax paid on it.

“The ATO is reviewing applications they suspect don’t meet the criteria, so now is the perfect time to own up if you think you made a mistake,” Sally Tindall said, research director at RateCity.

“You may need to pay tax on the amount you took out, but it’s likely you’ll avoid a fine if you own up.” 
 
To be eligible for the government’s early release of superannuation scheme, you must:

  • Be unemployed
  • Have been made redundant
  • Had working hours reduced by 20 per cent or more
  • Are a sole trader whose turnover fell by 20 per cent or more

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Learn more about superannuation

Is superannuation included in taxable income?

Superannuation is not included when calculating your income tax. So if you have a salary of $50,000, your assessable income would be $50,000, not $50,000 plus superannuation.

That said, superannuation itself is taxed. It is generally taxed at 15 per cent, although if you earn less than $37,000, you will be reimbursed up to $500 of the tax you paid.

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

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 work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ 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 guarantee 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.

Superannuation is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

You can withdraw your superannuation when 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

 

Is superannuation taxed?

Superannuation is taxed. It is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

Can my employer use money from my superannuation account?

No, your employer can’t touch the money that is paid into your superannuation account.

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 do you calculate superannuation from a total package?

Superannuation is calculated at the rate of 9.5 per cent of your ‘ordinary-time earnings’. (For most people, ordinary-time earnings are their gross annual salary or 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.

As the Australian Taxation Office explains, some items are excluded from ordinary-time earnings. They include:

  • Overtime work paid at overtime rates
  • Expense allowances that are fully expended
  • Expenses that are reimbursed
  • Unfair dismissal payments
  • Workers’ compensation payments
  • Parental leave
  • Jury duty
  • Defence reserve service
  • Unused annual leave when employment is terminated
  • Unused long service leave when employment is terminated
  • Unused sick leave when employment is terminated

Although the superannuation guarantee is currently at 9.5 per cent, 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.

Can I transfer money from overseas into my superannuation account?

Yes, you can transfer money from overseas into your superannuation account – under certain conditions. First, you must provide your tax file number to your fund. Second, if you are aged between 65 and 74, you must have worked at least 40 hours within 30 consecutive days in a financial year. (Australians under 65 aren’t subject to a work test; Australians aged 75 and over cannot receive contributions to their superannuation account.)

Money transferred from overseas will generally count to both your concessional contributions limit and your non-concessional contributions limit. You will have to pay income tax on the applicable fund earnings component of any money transferred from overseas. You might also be liable for excess contributions tax.

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.

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set 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 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 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 pay superannuation?

Superannuation is paid by employers to employees. Employers are required to pay superannuation to all their staff if the staff are:

  • Over 18 and earn more than $450 before tax in a calendar month
  • Under 18, work more than 30 hours per week and earn more than $450 before tax in a calendar month

This applies even if the staff are casual employees, part-time employees, contractors (provided the contract is mainly for their labour) or temporary residents.

Currently, the superannuation rate is currently 9.5 per cent of an employee’s ordinary time earnings. This 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.

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