Paul Clitheroe answers five questions on super

When can you access your super early? What if you don't have enough in super? When is it time to close a self-managed super fund?

To mark Money's Love Your Super campaign, which kicked off earlier this month, here are five answers to five superannuation questions, thanks to Paul Clitheroe.

Visit moneymag.com.au/loveyoursuper to get involved.

Ask Paul: I have breast cancer, can I access my super early?

Dear Paul,

I have just turned 58 and my husband is 59. We have two dependent sons and are both working, with $200,000 remaining on our mortgage.

I work four days a week and, as I am the primary earner, we are not in a financial position for me to stop work so I can access my superannuation. 

Three years ago, I was diagnosed with stage four breast cancer. I would now like to access my super to enjoy my remaining years without needing to work full-time.

I don't have income insurance. It's my understanding that I'm unable to retire until age 67, or to transition to retirement until age 60.

For the limited number of people in my position, it seems unfair that we are not able to access our super to enjoy our final years without needing to work.

Do you have any advice to help me from a financial perspective? - Tanya

Your question is not one that is easy to answer, Tanya.

As we all know, and I have said more times than I can remember, money gives us choices, which is great, but our own health and the health of those we love is the primary issue.

I have loved ones around me who have been diagnosed with breast cancer and it is unlikely that any of us would not know someone in this situation.

I really do appreciate that breast cancer, or any cancer for that matter, is a personal journey. Much is dependent on so many factors that come with a cancer diagnosis, but being diagnosed with stage four breast cancer three years ago is a serious issue.

Thank you for asking me to comment from a financial perspective, which I do know a bit about.

Access to your super is not likely to be an issue for you. You should talk to your fund about your situation. As you have recently turned 58, I agree with you that your birth date would most likely mean your "preservation age" is 60.

But with your cancer, this may be far too long a time to wait to access super. I am sure you will have looked at any sick leave available to you from your employer.

First, you can talk to your super fund about "compassionate grounds" to access your super. This can cover medical treatment, home loan repayments and unpaid expenses.

The next option is not easy to discuss.

But if two doctors, one being a specialist, were to consider that your prognosis is likely death within two years, you can access your super tax free. If you have total and permanent disability (TPD) in your super fund, this may also release that payment.

From a financial perspective, these are likely to be your two best options to access super early.

But with the huge strides being made with cancer treatments, my hope, of course, is that using compassionate grounds to access super may provide you with money to assist your current costs and then you can access super as you reach your preservation age and retirement.

***

Ask Paul: I'm 35 and only have $6000 in super

Dear Paul,

I'm a 35-year-old single woman with a $6000 super balance due to working for family for so many years. I am starting a public service job and hope to stay in the public service.

I have been advised that I can now join a public service super fund or remain in my current fund, AustralianSuper. Both accounts have pros and cons. 

I come from a financially illiterate family and feel unsure of the best way forward for me. 

I could also use some tips on salary sacrifice to both improve my woeful super balance and for the first home buyer scheme.

A little advice would be priceless. Thank you. - Sally

Yours is a pretty common situation, Sally. Working, presumably, in a smaller, family-owned business is rarely good for your super.

The bigger issue here is that your new employer, the government, will pay into whatever super fund you choose. I am going to ask you to do a quick list of the pros and cons of the PSS fund you are being offered and AustralianSuper.

My guess is that AustralianSuper will offer you more investment options. This is important.

You are investing with a term of around 30 years. The one thing that helps with risk in investment markets is time.

So, in your shoes, I would be going for a high-risk option, investing mainly in growth assets - shares, property, infrastructure and private equity.

The first step is to compare the higher-risk options in your PSS fund and AustralianSuper and look at long-term returns.

Next, of course, are fees. I suspect you will find these pretty similar. Then we move to an important area, insurance. Here I suspect a PSS fund may give you better cover, possibly at no cost to you.

Once you suss out these three key areas, I know you will quickly come to the right conclusion.

Next, home ownership. Salary sacrifice will certainly boost your super in a tax-effective way. But I reckon you want to own a home before you retire, so here I agree with you about the first home buyer scheme.

A state-based first home buyer scheme is definitely worth considering, as is the federal First Home Super Saver (FHSS) scheme, where you can make before-tax contributions to your super, up to $15,000 a year, and withdraw up to a total of $50,000 to buy a home.

But the key here is how much you can save. Retirement for you is many decades away. I would argue that your order of priority is to, first, determine your savings capacity; second, take a look at the FHSS scheme and also first home buyer initiatives in your state. Then start saving!

***

Ask Paul: Should we pay off mortgage with super?

Dear Paul,

My husband is 68 and would like to retire soon. Should we pay off our mortgage (under $300,000) with his super?

We have no other income streams, around $370,000 in super, around $25,000 in savings and no other assets.

We would eventually sell and downsize. I'm still working part-time and earn around $350 a week, but I'm only 57, so I can't retire yet. - Suzi

Interesting question, Suzi. I can only provide you with a broad look at the key factual issues around your decision.

For expert, personal advice, I would want you to see a professional financial adviser. A chat to your super fund may help - it is likely to offer member advice or be able to refer you to a reputable adviser.

The facts here, though, are both simple and complex.

The simple bits are that if you take $300,000 out of super to pay down your mortgage, you are depriving yourself of a tax-effective pool of money to fund your retirement once you downsize.

You would also reduce your access to cash to the remaining $70,000 in super and $25,000 in savings.

This is the more complex bit. Will super earn more than the interest you pay on your mortgage?

Over the decades, a good, low-cost, balanced-type super fund has been earning members, on average, more than 8% a year. Your mortgage is costing you, perhaps, around 6%?

To take all this information and make it personal to you, start with a chat to your super fund.

But if I was in your shoes and planning to downsize, thereby getting rid of my mortgage, the last thing I would be touching, except for an annual income stream to live on, would be my super.

***

Ask Paul: My boss hasn't paid my super since early last year

Dear Paul,

How often does my employer need to pay my superannuation? I am on a temporary visa and my work has not paid my superannuation since early last year.

I don't want to cause trouble for anyone, but my Australian friends say my boss really should be paying my superannuation. Thank you. - Binh

Yow, this is not good, Binh. In fact, it is totally outrageous.

Super must be paid every three months into the employee's nominated account. From 2026 this will be every payday.

There is absolutely no excuse your employer can use not to pay your super.

I appreciate that you are on a temporary visa, but it concerns me your employer may be using this as an opportunity to not pay your super. Your employer is liable to pay a superannuation charge of the shortfall amount, plus interest of 10% and an administration fee.

From here you can take a couple of steps.

A lot depends on your relationship with your employer. You could raise this with them.

A formal step you can take is to use the ATO online tool to inform them your employer is not meeting their super guarantee obligations. The ATO will use this information to investigate your employer.

***

Ask Paul: Should I close my self-managed super fund?

Dear Paul,

I have a property in a self-managed fund that has given us a boost from $180,000 in super to $550,000 in the space of four years.

However, with body corporate fees, life and TPD premiums, compliance and everything else, it's adding up (around $14,000 a year), not to mention the SMSF's $38,000 mortgage.

My fear is that it won't grow before retirement, and my accountant says to diversify and buy exchange traded funds (ETFs).

At the age of 52, I'm unsure whether to stick it out or pull rank and go back into a traditional fund.

We're not in a position to make additional personal contributions as we're currently paying off our home loan.

I am wondering if we cash out to a traditional fund, how much would our super roughly grow between now and retirement as opposed leaving it in my SMSF? - Sonya

Wow, Sonya, the property has really given your super a boost.

How you tackle your investment strategy from here is an interesting question. My overriding view is that a good investment tends to keep on being a good investment and a bad investment tends to keep on being a bad investment.

So, I am not sure why you think the property will not grow in value over the next decade or so to your retirement. Yes, it is costing you $14,000 a year, plus mortgage repayments on $38,000, but it has increased in value dramatically.

If there are some particular issues around the property, meaning it will not grow in value, fair enough, you should sell it. But I want you to question why this very good investment becomes a poor investment.

Once you review that, then the options you outline are fine. If you do decide to sell, ETFs inside your current super fund are a perfectly good idea.

Moving your funds to a traditional low-cost super fund is also fine. In terms of returns, a decent, low-cost super fund has returned around 8%-10% a year for decades from a balanced or growth option. This will also be a diversified option.

But first up you need to decide if you are keeping the property. If you decide to sell it, then I doubt that well-chosen, broadly based ETFs or a low-cost super fund will perform 
very differently.

It is more about whether you wish to keep your SMSF going, with its associated costs, or whether you prefer a good quality, large, low-cost, publicly available super fund and reduce the costs and time you need to put into your SMSF.

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