The end of financial year will soon be upon us. But once you get past…
Early Access to Your Super – COVID-19
The COVID-19 early superannuation release measure received royal assent on 24 March 2020, but will not be active until 20th April 2020. The government is allowing individuals affected by the economic impacts of COVID-19 to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21. Withdrawals will be tax free and will not affect Centrelink or Vets’ Affairs payments. Australians wishing to withdraw under these provisions must make an application to the ATO via the myGov website. Expressions of interest can be lodged now but will not be processed until after 20 April.
Only one application will be permitted each year. If the full $10,000 is not applied for in the first year, you cannot subsequently apply for the balance remaining in the following year over the $10,000. Meaning, if you only take out $6,000 this financial year, you cannot take out $14,000 next year, you are only able to take out a maximum of $10,000 each year.
To apply for early release, you must satisfy one or more of the following requirements:
- unemployment; or
- eligibility to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
- on or after 1 January 2020: redundancy; or
- a reduction to working hours of 20 per cent or more; or
- for sole traders — business was suspended or there was a reduction in turnover of 20 per cent or more over the last six months (this time frame could be less if sufficient evidence is provided.)
Access on Compassionate Grounds
This early release measure is stand alone. It does not reduce a member’s entitlement to make an application under the Financial Hardship or Compassionate provisions.
Use Extreme Caution
This early access to superannuation measure is something that should be entered into only in extreme circumstances. Pulling money from your superannuation at a time when markets are low will likely have a dramatic impact on your super balance now and into the future. Drawing money out now will materialise paper losses, removing any hope of “recovery” for that money. However, people do need to survive this pandemic, so if you need the extra money to just survive, proceed with an application.
The below table shows the amount of earnings forgone if you withdraw the full $20,000 assuming a 7% average rate of gross. As you can see if you are in your 30s and have another 30 years of working ahead of you, removing $20,000 now could have a $132,245 impact on your final retirement balance.
|Years to retirement||5 years||10 years||20 years||30 years|
Note: there have been reports in the media that real estate agents have sent letters to tenants advising them to apply for early release of their superannuation to pay their rent. ASIC has warned estate agents against this practice as it is a breach of the Corporations Act. Prime Minister Scott Morrison has announced a six-month moratorium on residential evictions, so there are other options to explore. Please do not take financial advice from your real estate agent. Get advice or debt counselling from a financial planner.
How to Apply
It is important to get sound financial advice from a financial planner. Depending on where you are in your work lifecycle, removing up to $20,000 in superannuation could have a significant impact. Get advice on what is the most suitable course of action for your circumstances. The government has announced a raft of policies to help Australians get through this difficult time.
Read our article: Steps to Prepare and Protect Your Finances During the Coronavirus Recession.
If you need help from a financial adviser contact the team at Elliot Watson Financial Planning 02 4038 1623.
The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser.
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