Early Access to Superannuation – Make the Decision Wisely! By Matt Richardson

Matt Richardson

Most of you will be aware of the ATO’s measure to address the impact of COVID-19 allowing people early access to their superannuation.  This concession allowed taxpayers to access up to $10,000 prior to 1 July 2020 from their superannuation fund and another $10,000 since.  The withdrawals would also be tax-free.

In order to meet the criteria to access your super you only had to satisfy ONE of the following:

  • Be unemployed; or
  • Eligible to receive one of JobSeeker, Youth Allowance, Parenting Payment, Special Benefit or Farm Household Allowance; or
  • On or after 1 January 2020 you were either:
    • Made redundant;
    • Your working hours were reduced to zero;
    • You were a sole trader and your business was suspended or there was a reduction in turnover pf 20% or more.

Up to 26 July 2020, a staggering $29.4 billion (billion with a “b”) has been withdrawn from taxpayer’s superannuation accounts in over 3.8 million transactions (many taxpayers have withdrawn up to $10,000 twice).

Research by Alpha Beta/illion of 13,000 people who withdrew their superannuation detailed the following:

  • 64% of the amounts withdrawn were spent on discretionary items such as clothing, furniture, restaurant food, gambling and alcohol;
  • 40% of those who accessed their super under these provisions had no drop in income during the COVID-19 crisis;
  • Credit card data confirms average credit card spending in the fortnight after the withdrawals were made was up $3,000;
  • Only 14% of what was withdrawn went to debt repayments.

Of course there will be many cases where there was a genuine need for early access to super, to assist with the necessities of living, but the research appears to show a large portion of the withdrawals were made for lifestyle purposes.

What is the potential cost of early withdrawal?  It depends on how much you withdraw, what the future average earnings are and how many years until you retire.  The table below illustrates if a $10,000 withdrawal was made, what it might be worth in the future if it was left in superannuation, at different earning rates.

Year 4% 5% 6% 7%
10 $14,802 $16,289 $  17,908 $  19,672
20 $21,911 $26,533 $  32,071 $  38,697
30 $32,434 $43,219 $  57,435 $  76,123
35 $39,461 $55,160 $  76,761 $106,766
40 $48,010 $70,400 $102,857 $149,745

The compounding effect on returns means early access to your super, may end up costing you a lot more than you think.

So what should you do if you are in financial difficulty?

Firstly – be aware of all of your financial assistance options.

Can you access any Government support payments? Are you able to restructure loan/finance arrangements with your bank?  Are you prepared to review your budgeted spending for the next few months?  Will having a lower superannuation balance have an impact on the insurance cover within your super fund?
Be aware of the impact on your future retirement savings of any withdrawal you make.

Accessing your superannuation may be an option, but make sure it is not your first option, because of the potential long-term impact to your retirement savings.

Exhaust and investigate all other avenues before you make any withdrawals from your superannuation fund.