A warning to people accessing $10,000 of their super this Christmas

A warning to people accessing $10,000 of their super this Christmas

With just 10 days left for Australians to withdraw $10,000 in the Early Release Super Scheme, some families will be reassessing whether they need to access this cash over Christmas.

Consumer advocate RateCity.com.au is encouraging people to consider alternatives before taking money out of their super, or if they access it, to come up with a plan to put the money back when they can.

COVID-19 Early Release Scheme figures released today from APRA show that since April:

  • $35.8 billion of super has been withdrawn under the scheme.
  • $7,645 is the average payment (across both rounds).
  • 3.4 million people have accessed their super.
  • 1.4 million of these people made repeat applications.

 

Some Australians facing financial hardship due to COVID may now be considering making a last-minute application before the 11:59pm AEDT New Year’s Eve deadline.

RateCity.com.au research director Sally Tindall said: “Christmas is an expensive time of year but it’s worth resisting the urge to use super to buy expensive presents.

“However, Christmas isn’t the only thing squeezing people’s finances right now,” she said.

“The new wave of COVID restrictions and border closures could force people to resort to their super. Some businesses hoping for a bump at Christmas might now be closing their doors instead.

“There may even be some people who have managed to survive this year without dipping into their super who are now considering it.

“If this is you, carefully look at your other options before you resort to your super. Talking to a financial counsellor might help you think of alternatives to get through.

“The reality is, some people will have no alternative but to tap into their super. If you do, try to put the money back when you’re on your feet again to minimise the long-term fallout,” she said.

Long term impact of withdrawing super

Money taken out of a super account today can have long term implications on people’s retirement savings. According to ASIC, a 30-year-old who takes out $10,000 now will have an estimated $21,516 less in retirement. If the person takes out $20,000 over both rounds, they could stand to have $43,032 less in retirement, if the money is not replenished.

Long term impact of withdrawing super

Money taken out of a super account today can have long term implications on people’s retirement savings. According to ASIC, a 30-year-old who takes out $10,000 now will have an estimated $21,516 less in retirement. If the person takes out $20,000 over both rounds, they could stand to have $43,032 less in retirement, if the money is not replenished.

  Estimated reduction to super balance at retirement
Age $10,000 withdrawal $20,000 withdrawal
30 $21,516 $43,032
40 $17,512 $35,024
50 $14,253 $28,506

Source: ASIC Moneysmart calculator, assumes income of $50k and retirement at 67. See full assumptions at the end.

Who is eligible to withdraw super? Key criteria:

The early release of super funds must assist you with the adverse economic effects of COVID-19. In addition, one of the following must apply:

  • You are unemployed, on JobKeeper or similar benefit.
  • OR on or after 1 January 2020 either:
  • You were made redundant.
  • Your working hours were reduced by 20% or more (including to zero).
  • Your small business has experienced a reduction in turnover of 20% or more.

 

If you do access your superannuation before Dec 31:

  • Before you do anything, call an independent financial advisor. Ask yourself, is there another way?
  • Make sure you meet the eligibility criteria. There are fines of up to $12,600 for misleading claims.
  • Come up with a plan to put the money back into your super as soon as you possibly can through extra contributions.
  • Use the money wisely and take as little as possible. This is your nest egg. Don’t blow it all on Christmas presents.

 

SUPERANNUATION NOTES: The estimates provided use the assumptions from the Superannuation Calculator. Assumptions include an income of $50,000, inflation of 4.0% p.a. (2.5% p.a. due to the rising cost of living [CPI inflation] and a further 1.5% p.a. for the cost of rising community living standards), investment return before tax and fees of 7.5% p.a and fees of 0.85% p.a. Assumed tax on earnings is 7.0%. Estimates are in today’s dollars.

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Learn more about superannuation

How much extra superannuation can I add to my fund?

There is an annual limit of $25,000 for concessional contributions – that is, money paid by your employer and extra money you pay into your account through salary sacrificing. There is also a limit on non-concessional contributions. Australians aged between 65 and 74 have a limit of $100,000 per year. Australians aged under 65 have a limit of $300,000 every three years.

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 many superannuation funds are there?

There are more than 200 different superannuation funds.

What is lost superannuation?

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.

How do you access superannuation?

Accessing your superannuation is a simple administrative procedure – you just ask your fund to pay it. You can access your superannuation in three different ways:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

However, please note that your superannuation fund will only be able to make a payout if 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

The preservation age has six different categories:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

There are also seven special circumstances under which you can claim your superannuation:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia

What age can I withdraw my superannuation?

You can withdraw your superannuation (or at least some of it) when you reach ‘preservation age’. The preservation age is based on date of birth. Here are the six different categories:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

When you reach preservation age, you can withdraw all your superannuation if you’re retired. If you’re still working, you can begin a ‘transition to retirement’, which allows you to withdraw 10 per cent of their superannuation each financial year.

You can also withdraw all your superannuation once you reach 65 years.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

How can I withdraw my superannuation?

There are three different ways you can withdraw your superannuation:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

Two rules apply if you choose to receive an account-based pension (also known as an income stream):

  • You must receive payments at least once per year
  • You must withdraw a minimum amount per year
    • Age 55-64 = 4%
    • Age 65-74 = 5%
    • Age 75-79 = 6%
    • Age 80-84 = 7%
    • Age 85-89 = 9%
    • Age 90-94 = 11%
    • Age 95+ = 14%

If you want to work out how long your account-based pension might last, click here to access ASIC’s account-based pension calculator.

What happens if my employer falls behind on my superannuation payments?

The Australian Taxation Office will investigate if your employer falls behind on your superannuation payments or doesn’t pay at all. You can report your employer with this online tool.

How do I change my superannuation fund?

Changing superannuation funds is a common and straightforward process. You can do it through your MyGov account or by filling out a rollover form and sending it to your new fund. You’ll also have to provide proof of identity.

How do I combine several superannuation accounts into one account?

The process used to consolidate several superannuation accounts into one is the same process used to change superannuation funds. This can be done through your MyGov account or by filling out a rollover form and sending it to your chosen fund.

How much superannuation do I need?

According to the Association of Superannuation Funds of Australia (ASFA), here is how much you would be able to spend per week during retirement:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

Is superannuation paid on unused annual leave?

If your employment is terminated, superannuation will not be paid on unused annual leave.

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