The Australian government is allowing citizens, permanent residents and some temporary residents to dip into their superannuation accounts early in order to get through the coronavirus crisis.
Under the scheme, those who are eligible can access up to $10,000 in the 2019-20 financial year and another $10,000 in 2020-21.
However, not everyone will qualify for this scheme and it you need to consider the long-term effects on your retirement income.
Can I access my super early?
Citizens and permanent residents of Australia and New Zealand may be eligible to access super early if they have been financially impacted by the COVID-19 crisis. To be eligible you must fit into one of these criteria:
- You are unemployed
- You qualify for the jobseeker payment, youth allowance for jobseekers (unless you are in full-time study or are a new apprentice), a parenting payment (including single and partnered payments), special benefit or farm household allowance
- On or after January 1, 2020 you were made redundant, your working hours were reduced by at least 20 per cent or in the case of a sole trader, your business was suspended or had a reduction in turnover of 20 per cent or more.
Temporary residents can access their super early if they are in one of the following circumstances:
- You have been on a student visa for 12 months or more and cannot meet immediate living expenses
- You are on a temporary skilled work visa and your work hours are reduced to zero but you are still engaged with your employer (i.e. stood down from work but not let go)
- You are on a different temporary resident visa (not student or skilled work) and cannot meet immediate living expenses
Temporary residents can only make one withdrawal of up to $10,000 for the 2019-20 financial year.
How can I apply to access my super early?
Applications can be lodged via the ATO online services via the myGov website. It means you need to have a myGov account set up and linked to the ATO. You need to have your Australian bank details ready to go and have checked your superannuation account balance. The best way to do that is by checking with your super fund directly through their website or your last statement as ATO online will usually show your balance from June 2019.
You can only make a request for yourself - any dependents will need to fill out their own applications. You won't need to provide evidence of your circumstances when you apply but you should keep records in case you get audited later on.
There's only one chance to submit your application per financial year, even if you have requested less than $10,000, so take care to fill it out correctly with the right amount.
When can I apply?
You have until June 30 fill out one application for the 2019-20 financial year. You can place another application for the 2020-21 financial year from July 1 to September 24, 2020. Temporary residents can only apply in the first round for 2019-20.
What happens next?
Wait for your letter of approval or rejection, which will be sent to your myGov inbox up to four business days after the application is received.
If it's approved, your super fund will make the payment within five business days. If your fund is a self managed super fund, you will need to let them know you have been approved so they can make the payment.
What are the risks?
While getting up to $20,000 out of your super fund might seem like a good idea now, it will have a long-term impact on your balance in retirement, says Professor Robert Breunig, who is the director of the Tax and Transfer Policy Institute at the Australian National University.
"People should really think hard about pulling $10,000 out particularly if they're young. That money will triple in retirement."
Women should also especially think twice about taking out the funds.
"Because of work interruptions related to childbearing that hit women harder than men, women end up with lower balances," Professor Breunig said.
However, the long term penalty might not be as much as you might expect, especially for middle-income earners. Household finance director at the Grattan Institute Brendan Coates said in many cases the aged pension would step in to boost retirement incomes.
"The effect of 30 plus years of compounding returns is offset by fact that you get a larger aged pension," he said.
"Super is just part of a retirement income."
With half of working households only having $7000 in savings, Mr Coates said early access to super was a necessary measure to fill the gap while people wait for JobKeeper or JobSeeker payments to hit their bank accounts.
"There are certainly plenty of high-income household that don't have much in the way of liquid assets.
"It should be there for people to weather the storm."
Professor Breunig said there was also a risk that people would use the scheme to minimise their tax, as it allows people to pull money out of their super without a tax penalty while also making a voluntary contribution.
"I worry about these types of schemes because I worry people will misuse them."
How else can I get financial help?
Before withdrawing your super, consider calling the person you are needing to repay and negotiate. Professor Breunig said banks were showing more flexibility and considering low interest rates, the penalties for deferring payments will be low.
Check your eligibility for JobKeeper and JobSeeker payments.
Seek professional financial advice before making any major decisions.
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