Early release of your superannuation
The government is allowing individuals affected by COVID-19 to access up to $10,000 of their super before 1 July 2020 and a further $10,000 from 1 July 2020 to 31 December 2020.
Your super is designed to help your retirement. However, for those financially affected by COVID-19, the benefits of accessing super early may outweigh the lost savings in the future.
If eligible you can apply online through myGov from 20 April 2020.
- Unemployed; or
- Working hours reduced by 20% or more; or
- Sole trader whose business was suspended or there was a reduction in turnover of 20% or more.
You do not pay tax on amounts released and the money you withdraw will not affect Centrelink or Veterans’ Affairs payments.
If successful, your super fund will receive a copy of the decision from the ATO advising them to make a payment to you. If you have a self-managed super fund (SMSF) guidance is available on the ATO website www.ato.gov.au
What is happening to your super?
Given the recent share market declines due to COVID-19 it is worth considering the impact to your largest investment - your super - before you apply for early access.
It is highly likely your super balance has taken a hit since share markets around the world adjusted to the economic downturn caused by the virus.
Given a large portion of your super is invested in shares, it may mean that your super has gone backwards, potentially up to 20% since the highs only a month ago.
Should you apply to access $10,000 of your super?
It is a good question, and it depends on your personal financial situation.
If you face financial hardship, this money might be critical to your survival, your 'money of last resort'. If you are considering taking money out of your super to pay your mortgage or rent, please read about your options in the "Protecting your home - property, mortgages and renting" section of this toolkit.
However, if you would 'like' but don't 'need' the money, please read on.
What happens to super during an economic shock?
Your super is a long term investment and it will be exposed to many market cycles over your working life. Let's look at the global financial crisis (GFC) in 2008 as an example of an economic shock, in addition to the impact from COVID-19.
Global Financial Crisis (GFC)
If you had a super balance of $10,000 at the time of the GFC and you kept it invested in a growth fund, 10 years later your investment would be worth around $20,000.
If you had panicked and shifted to a defensive option you would have a far smaller return of around $15,000. Moving your super out of growth option would have cost you $5,000 or 50% of your returns over the next 10 years.
COVID-19 provides the option of taking $10,000 out of your super. You will get no return on your $10,000 and have nothing in 10 years time, costing you $20,000. Your original $10,000 super withdrawal + $10,000 in lost super returns.
What is the plan?
The plan for most working Australians is to simply do nothing and hang tight. Staying invested provides an opportunity to reap the financial rewards when markets improve, compounding the long term returns on your super investment.
General advice warning
Rollit Wealth provides general information only. You should assess whether the information is appropriate for you having regard to your objectives, financial situation and needs and consider obtaining independent professional advice before making an investment decision. If information relates to a specific financial product you should obtain a copy of the PDS for that product and consider that statement before making a decision whether to acquire the product. Roll-it Super Pty Ltd. ACN 611 756 140. AFSL Authorised Representative No. 1273703 of MSC Advisory Pty Ltd. ACN 607 459 441. AFSL 480649 (MSCA).