More than 1 million Australians whose financial situations have not been hit by COVID-19 plan to take money from their superannuation early, a new poll indicates.
Forty per cent of people who have applied for the early release of their superannuation may not pass the Australian Taxation Office’s eligibility criteria, according to a survey of 1100 commissioned by Industry Super Australia and conducted by UMR.
To be eligible, individuals must be either:
- eligible to receive a JobSeeker payment, youth allowance for job seekers, parenting payment (single and partnered), special benefit or farm household allowance;
- made redundant on or after January 1 2020;
- 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.
Those eligible may apply to withdraw up to $10,000 from their super before July 1, and another maximum payment of $10,000 before September 24.
Ineligible applications could slow down the claiming process for people who genuinely need to access their nest egg to make ends meet, according to ISA.
About 30 per cent of those surveyed indicated that they were “very likely or likely” to dip into their retirement savings early. Of those, 40 per cent earn an annual household income of more than $104,000.
Almost half of this cohort “very likely” to apply said they were still in paid work and their working hours had not been cut due to the pandemic.
Nearly 30 per cent of those likely to apply suggested that they wanted to withdraw from their super as they were concerned about their job security due to COVID-19.
Those wanting to access their nest eggs early intend to take out an average of $13,500 each.
The federal government estimates that $27 billion of super could be released early by about 1.5 million Australians, but ISA believes the dollar figure could exceed $40 billion.
“It is tempting to tap into your super early, some may want to do so as a savings buffer, but nothing in life is for free and cracking open your nest egg comes at steep cost – it should be treated as a last resort,” ISA chief executive officer Bernie Dean said.
Superannuation balances take a hit
The survey comes as fresh Chant West data shows that median growth superannuation funds declined by about 10 per cent in the three months to March 2020.
The performance for the first nine months of the financial year also entered negative territory, decreasing by about 6 per cent, as investors around the world sold off shares in droves due to COVID-19 fears.
Chant West senior investment research manager Mano Mohankumar said those considering accessing their super early or switching to a less risky option should remember that superannuation is a long-term investment.
“Over the 2019 calendar year alone, growth funds returned an exceptional 14.7 per cent, so super funds are actually ahead of where they were at the start of last year, even after what we’ve seen in February and March,” he said.
Most Australians have their retirement savings tied in growth super funds, which is generally 61 to 80 per cent invested in growth assets, such as shares and property.
The purpose of growth super funds is to bring in stronger returns in the long run, but losses may be more significant than that of lower-risk super funds in market downturns.
While Mr Mohankumar said it was too early to tell what the full economic impact of the coronavirus will be, he believed the market will bounce back.
And there are early signs of this potentially occurring.
In April so far, share markets have clawed back some of its recent losses, with Australian shares and international shares climbing by 8.3 per cent and 8.9 per cent respectively for the month to date.
“Our estimated return for April to date for the median growth funds is currently 3.8 per cent,” he said.
He stressed that more volatility is expected in coming months as investors in the share marker react to positive and negative news.
Traditional diversified super fund performance (results to March 31, 2020)
|Risk category||Exposure to growth assets (%)||Past 3 months (%)||Past year (%)||Past 5 years (%)|
|All growth||96 - 100||-16.0||-6.5||4.4|
|High growth||81 - 95||-13.0||-4.6||4.6|
|Growth||61 – 80||-10.1||-3.0||4.7|
|Balanced||41 – 60||-7.3||-1.7||3.6|
|Conservative||21 - 40||-4.7||-0.1||3.6|
Note: Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions.
Source: Chant West.