Coronavirus-affected Aussies allowed more time to dip into super

Coronavirus-affected Aussies allowed more time to dip into super

Australians financially impacted by COVID-19 will have another three months to cash out their superannuation, as the government extends the application deadline to the end of the year.

The government said it hoped “to increase the scope for individuals who may still be financially impacted by COVID-19 to access early release in the coming months”.

Originally, the deadline for those wanting to access their nest eggs this financial year was September 24.

The Association of Superannuation Funds of Australia (ASFA) warned that the early release of super could have long-term impacts on both individuals and the broader economy.

“If low income earners and young people’s superannuation continues to be eroded by the early release stimulus scheme, we risk losing sight of superannuation’s intended purpose, which is to provide adequate income for Australians in retirement,” Dr Martin Fahy, ASFA’s chief executive officer, said.

For the millions who have lost their jobs or who have seen their income reduced, the federal government gave the green light in March for eligible Australians to withdraw up to $10,000 from their super in the first tranche before the end of the 2019-20 financial year, and a maximum of another $10,000 this fiscal year.

It’s possible for financially distressed Australians to withdraw in both rounds of the scheme, making the maximum possible withdrawal amount $20,000.

As many as 800,000 jumped at the opportunity to take out money from their retirement savings a second time within the first 12 days of the new financial year, the latest data from the Australian Prudential Regulation Authority shows.

More than 80 per cent of those applying during this period were intending to dip into their super for the second time.

Australians have requested to cash out some $29.3 billion worth of super, which has been approved to more than 2.5 million workers, Australian Taxation Office figures show.

The Treasury originally forecast that 1.7 million individuals would take out $29 billion of super – figures that have already been surpassed.

Should I cash out my super?

The government is forking out billions of dollars in stimulus support to help Australians doing it tough due to the pandemic. It was revealed this week that the federal budget is expected to be in the biggest deficit post World War II.

The pandemic’s impacts on the financial markets has also affected the returns on Australians’ retirement savings, with median growth super funds losing half a percent in the past financial year, Chant West data shows.

While returns may have been flat on your nest egg, it may be worth weighing up your options before rushing to cash out your super this fiscal year. It’s likely that your super balance when you retire will take a hit if you tear out thousands of dollars from your nest egg today. This is largely because compound interest and potential investment returns work together to grow your super over time. 

In other words, the younger you are when you take money out from your super and the more cash you withdraw before you retire, the more potential growth you may be missing out on in your twilight years.

MoneySmart’s super withdrawal estimator showed that dipping your super could potentially leave a serious dent in your retirement balance. Based on an annual income of $50,000 and using the average withdrawal amount of about $8,000 as a hypothetical example: 

  • If you’re 25 years old, your super could be $19,080 worse off when you retire.
  • If you’re 35 years old, your super could be $15,549 worse off when you retire.
  • If you’re 45 years old, your super could be $12,639 worse off when you retire.
  • If you’re 55 years old, your super could be $10,287 worse off when you retire.

Recent ASFA research found that most requests to dip into their super came from Australians aged under 35.

If you’ve had more time during COVID-19 to assess your super fund, its fees and performance, you could consider comparing funds as a possible next step. If you’re thinking of consolidating or switching super funds, it’s best to speak to a financial adviser, who can provide financial advice specific to your situation.

   

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Learn more about superannuation

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.

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

 

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 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.

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 is superannuation regulated?

The Australian Prudential Regulation Authority (APRA) regulates ordinary superannuation accounts. Self-managed superannuation funds (SMSFs) are regulated by the Australian Taxation Office.

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.

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.

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 choose a superannuation fund or does my employer choose one for me?

Most people can choose their own superannuation fund. However, you might not have this option if you are a member of certain defined benefit funds or covered by certain industrial agreements. If you don’t choose a superannuation fund, your employer will choose one for you.

What will the superannuation fund do with my money?

Your money will be invested in an investment option of your choosing.

What are ethical investment superannuation funds?

Ethical investment funds limit themselves to making ‘ethical’ investments (which each fund defines according to its own principles). For example, ethical funds might avoid investing in companies or industries that are linked to human suffering or environmental damage.

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.

Am I entitled to superannuation if I'm a part-time employee?

As a part-time 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