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Up to 26 July 2020, a staggering $29.4 billion (billion with a “b”) has been withdrawn from taxpayer’s superannuation accounts in over 3.8 million transactions (many taxpayers have withdrawn up to $10,000 twice).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