Coronavirus and your super: it's a setback not a wipeout
As the coronavirus pandemic cuts a swathe through the economy, wiping out whole industries and leaving a mounting number of Australians jobless, workers are taking stock of their financial situation.
To keep businesses and households afloat, the federal government has rolled out a number of rescue packages, including temporary early access to super.
Eligible fund members can access a tax-free withdrawal of $10,000 up to June 30, 2020, and a further $10,000 from July 1, 2020, until September 24, 2020. The money will not affect Centrelink and Veterans' Affairs payments.
However, you can only make one withdrawal application for each period. Consequently, if you withdraw less than $10,000 in the first round but find it doesn't stretch far enough, you cannot go back for an additional top-up. Treasury estimates that up to $27 billion will be withdrawn this way, amounting to 1% of all assets held in super.
Although hardship provisions have long existed for early access to super for those in dire need, the rules are strict and the process cumbersome and lengthy. The new provision has been met with mixed messages from super funds, which fear mass outflows at the worst time possible, when assets have taken a hammering. Members have been warned that by accessing their money early they will lock in double-digit losses and retire with a lot less.
Alex Dunnin, executive director of research and compliance at Rainmaker Group, which publishes Money, says people should first check if they have any entitlements to Centrelink benefits.
"Use government money if you can. But if you've burnt that up, if this is your final option, that's what the emergency measures are for," he says.
"The government is trying to do the right thing on different fronts. It's telling energy providers that now is not the time to cut off people who haven't paid their bills, nor is it the time to be referring anyone to debt collectors. So the system is trying to help. As the Treasurer says, this is members' money, they should be able to access it if they need it."
Dunnin says that unless you top up your super when things normalise, you will inevitably retire with less.
"If you take out $20,000 in your late 20s, and you don't replace it, this could cost you $80,000 by the time you retire. If you're around 40, the long-run cost is about $40,000," he says.
Be aware, also, how it could impact your life insurance.
"If your balance falls below the $6000 threshold and your account is inactive, you might lose your insurance," warns Dunnin. "But again, if people are so desperate for the money, insurance won't be their main concern."
According to the Australian Prudential Regulation Authority, about 80,000 fund members withdrew money in the 2018-19 financial year due to hardship, taking on average $8000. The government estimates about 1.4 million people are likely to take advantage of the new provision - or about one in 10 members.
On a more positive note, during the trough of the GFC, super fund returns averaged -8% in 2008-09 and -13% in 2009-10. Since then they have had a 10-year run of positive returns, delivering members 8.5% a year on average over this period, says Dunnin.
"As difficult as this recent period is, we should take solace in the fact that it takes us back to where many of us were two years ago.
"It is very wrong to say super has or is being wiped out. We've learned from previous crises that super has this uncanny habit of surprising on the upside. It's done so in the past, and it will do so again."
We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.