More than a million Aussies unaffected by COVID-19 want to draw cash from nest eggs

More than a million Aussies unaffected by COVID-19 want to draw cash from nest eggs

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:

  • unemployed;
  • 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.

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Learn more about superannuation

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 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 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 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?

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 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 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.

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.

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

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 compliance obligations does an SMSF have?

SMSFs must maintain comprehensive records and submit to annual audits.

How do I wind up an SMSF?

There are five things you must do if you want to close your SMSF:

  1. Fulfil any obligations listed in the trust deed
  2. Pay out or roll over all the superannuation
  3. Conduct a final audit
  4. Lodge a final annual return
  5. Close the fund’s bank account

What is an SMSF?

An SMSF is a self-managed superannuation fund. SMSFs have to follow the same rules and restrictions as ordinary superannuation funds.

SMSFs allow Australians to directly invest their superannuation, rather than let ordinary funds manage their money for them.

SMSFs are regulated by the Australian Taxation Office (ATO). They can have up to four members. All members must be trustees (or directors if there is a corporate trustee).

Unlike with ordinary funds, SMSF members are responsible for meeting compliance obligations.