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The money withdrawn from superannuation -- as much as $20,000 over two applications -- won’t be working on accumulating interest.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

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

 

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.

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 I buy a house with my superannuation?

First home buyers are the only people who can use their superannuation to buy a property. The federal government has created the First Home Super Saver Scheme to help first home buyers save for a deposit. First home buyers can make voluntary contributions of up to $15,000 per year, and $30,000 in total, to their superannuation account. These contributions are taxed at 15 per cent, along with deemed earnings. Withdrawals are taxed at marginal tax rates minus a tax offset of 30 percentage points.

Voluntary contributions to the First Home Super Saver Scheme are not exempt from the $25,000 annual limit on concessional contributions. So if you pay $15,000 per year into the First Home Super Saver Scheme, you have to make sure that you don’t receive more than $10,000 in superannuation payments from your employer and any salary sacrificing.

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.

What is superannuation?

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

Is superannuation compulsory?

Superannuation is compulsory. Generally speaking, it can’t be touched until you’re at least 55 years old.

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.

Am I entitled to superannuation if I'm a contractor?

As a contractor, you’re entitled to superannuation if:

  • The contract is mainly for your labour
  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

Please note that you’re entitled to superannuation even if you have an Australian business number (ABN).

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 are the risks and challenges of an SMSF?

  • SMSFs have high set-up and running costs
  • They come with complicated compliance obligations
  • It takes a lot of time to research investment options
  • It can be difficult to make such big financial decisions

Am I entitled to superannuation if I'm a casual employee?

As a casual employee, you’re entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

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.

How do you create a superannuation account?

Before you create a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).