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.