Amid the raft of measures announced by the Commonwealth Government last month, one of the more contentious was the decision to allow limited access to superannuation benefits to people who are ‘under-age.’ This change took effect from Monday of this week.
Normally, unless a person becomes disabled, they need to wait until they reach a particular age, known as the ‘preservation age,’ before they can access their super. The actual age varies according to a number of variables, but the following table from the ATO shows the typical range of preservation ages:
|Date of birth||Preservation age|
|Before 1 July 1960||55|
|1 July 1960 – 30 June 1961||56|
|1 July 1961 – 30 June 1962||57|
|1 July 1962 – 30 June 1963||58|
|1 July 1963 – 30 June 1964||59|
|From 1 July 1964||60|
Changes have been introduced to allow a person to withdraw up to $10,000 between now and 30 June and/or $10,000 between 1 July and 24 September 2020. Altogether, a person could withdraw anything up to $20,000. At least one of the following conditions must be met for anyone wishing to withdraw some or all of this money:
- Eligibility for the Commonwealth’s new ‘Jobseeker’ payment (which may include people who have only been stood down);
- Redundancy since 1 January 2020;
- Reduced working hours (by 20% or more) in 2020; or
- For sole traders, reduced turnover (by 20% or more) or the business has been suspended.
In order to make the withdrawal, each fund will have some procedural elements that need to be borne in mind. The ATO will also involve itself. It is definitely not as simple as deciding you need the money.
Many media commentators have been quick to criticise this initiative. They argue that this is a bad policy and people should not make the withdrawals. This criticism is too general. Whether you should make such a withdrawal depends on your unique circumstances. Early withdrawal is a good idea for some, but not for others.
The main argument against early access is that people will ‘miss out’ on the wealth creation that would normally be expected if they retained the money within their super fund. This effect is worse the younger the person is, as their super investment could be expected to compound over a longer timeframe. This view can be correct, but it is actually a bit simplistic. Whether making a withdrawal has a negative impact on your wealth depends entirely on what you do with the money after you withdraw it. If you simply spend the money on lifestyle then, yes, your wealth will be reduced over the long-term.
But, then, that is the case whenever you spend any money on lifestyle, regardless of where it came from. Once money has been spent, it is gone for good.
Withdrawing your superannuation may be a necessity if you are suffering from COVID and face the risk of putting yourself in areas arrears with your home loan or rent as well as other bills. These can add up and be very difficult to catch up on once life returns to normal. That being said, you can reimburse your superannuation once you get back on track through additional contributions such as a salary sacrifice strategy. There are a few things to keep in mind with this though:
- Salary sacrificing will mean that your new contributions are again taxed at 15%, so simply putting $10,000 back in would mean you have only reimbursed your superannuation $8,500.
- The longer you wait, the longer the accumulative returns have been missed out on and the more you will need to put back in to make up for the withdrawal. To discuss how much of an impact this is, please contact us.
ASIC has stated we can provide you with a Record of Advice to discuss withdrawing your superannuation and the impact this has as well as advising around recontributing providing we limit the advice fee to $300.