Should you access your super early? Here’s what to consider
People financially affected by the coronavirus pandemic can access some of their super, but what will it cost long-term?
Need to know
- Many Australians are now eligible to withdraw up to $20,000 from their super over the next two financial years
- Accessing your super early should be a last resort
- New modelling from Super Consumers Australia shows the impact on your retirement savings for different age groups
Who is eligible to access super early?
In response to the disruption to the job market caused by COVID-19, the government has eased the rules around early access to super.
Several new groups of people are now eligible to access their super early:
- unemployed people
- those eligible to receive JobSeeker payment, Youth Allowance for job seekers, Parenting Payment, Special Benefit or Farm Household Allowance
- those who’ve been made redundant or had their working hours reduced by 20%, or sole traders whose business has been suspended or faced a reduction of 20% or more since 1 January 2020.
However, just because you can access your superannuation doesn’t mean you should.
We’ll help you weigh the pros and cons before deciding to dip into the funds meant to provide for your future and long-term financial security.
Accessible version
The pros and cons of accessing your super early
PROS:
– Money accessed through this scheme is tax-free
– Money may be more valuable to you now than in your retirement
CONS:
– Money withdrawn now won’t deliver compound interest
– Withdrawing money will likely see you cash out near the bottom of the market
What are the risks of accessing your super early?
Taking out money before retirement means losing the benefit of compound interest over a number of years. Depending on how old you are, withdrawing money now could see you miss out on more than double that amount by the time you retire.
With this in mind, Super Consumers Australia director Xavier O’Halloran says you should weigh all of your options before dipping into your retirement savings.
“There are a number of financial assistance options to help people through these tough times. Super will be the right option for some, but you should be looking at what else is available and possible cuts to discretionary spending before raiding the cookie jar.”
You should be looking at what else is available and possible cuts to discretionary spending before raiding the cookie jar
Xavier O’Halloran, Super Consumers Australia
Although making a withdrawal now and/or next financial year will eat into your retirement savings, don’t forget that you may also be eligible to receive a pension.
The Moneysmart retirement calculator lets you enter in your details (including any breaks from the workforce) to see how much you would get in retirement from your super and/or the pension.
Deciding whether or not to withdraw your super early is an individual choice. If you feel that you are being pressured or coerced into a decision in any way and are unsure what to do, these resources can provide you with some guidance:
Financial counsellors can help you decide whether to access your super early
“A lot of people are finding themselves in a financial situation they have never experienced before,” says Elizabeth Minter, communications manager at Financial Counselling Australia.
“It is important that they get free, independent advice about all their options. So, if someone is considering early access to their superannuation they should definitely contact the financial counsellors on the National Debt Helpline to get advice.”
This number for this helpline is 1800 007 007.
Financial counsellors can help people who are feeling overwhelmed or anxious about their employment status and finances. “All financial counsellors have training in counselling skills,” says Minter.
“They provide a safe and supportive space to discuss money troubles and are a really effective way to get help in resolving financial difficulty.”
More information about financial counsellors can be found at the Financial Counselling Australia website.
If you need guidance around accessing your super, your fund will also be able to give you some advice.
The National Debt Hotline offers free, independent advice to help you consider your options.
How will early access affect my savings?
An important point to consider is that the amount you withdraw from your super will no longer be invested. This means you may miss any eventual recovery in the market.
Super Consumers Australia modelling found that, for a 30-year-old, the impact of withdrawing $20,000 would be $49,823 by retirement age.
We’ve calculated the value of the withdrawal in today’s dollars for different age groups.
| 30 | $49,823 |
| 40 | $39,904 |
| 50 | $31,181 |
| 60 | $23,770 |
How did we arrive at these numbers?
The numbers in this table are based on the following assumptions:
- a single withdrawal of $20,000 at the start of the 2020/21 financial year
- retirement at age 67 (the current age for pension eligibility)
- accumulating super from the starting age through to age 67
- a conservative annual net investment return of 5%
- consumer price inflation applied to convert future dollars into today’s dollars
- the mid-year economic and fiscal outlook for the remainder of this financial year and the Reserve Bank’s target cash rate (a standard measure in these types of projections) as the long-run inflation rate.
People with lower super balances will be more impacted by early withdrawal of the allowable amount, as it will be a larger proportion of their savings.
Super Consumers Australia has previously highlighted that women generally retire with lower super balances. The median superannuation balances for people approaching retirement age (60–64 years) was 26% higher for men ($154,453) compared to women ($122,848). Women also have greater needs in retirement due to a longer life expectancy.
Advice from a financial counsellor will take your individual circumstances into account in helping you arrive at a decision about early access to your super.
Taking your super out early may mean you miss out on the market recovery
Experts like to say that ‘time in the market’ beats ‘timing the market’. This means that simply staying invested in the share market over the long term has historically produced higher returns than attempting to move in and out of the market to capitalise on fluctuations.
Analysis from finance publisher Firstlinks illustrates this point. It found that if you were invested in the S&P 500 (a US stock market index) between the start of 1999 and the end of 2018, the return was 5.6%.
But if you weren’t invested for the best 10 days during that 20-year stretch, your returns fall substantially – to 2%.
And if you missed the best 20 days, your returns would actually be negative.
Missing out on being invested when the market surges, which can happen without notice over a very short period of time, can be very costly indeed
This shows that missing out on being invested when the market surges, which can happen without notice over a very short period of time, can be very costly indeed.
Trying to ‘time’ the market or pick the right point to put your money back in is extremely difficult. Most experts can’t consistently beat the market with timing or investment picking.
In the event that you do access your super early, you can make extra contributions to your super once back in secure work, in order to catch up. But you may not be in a position to start making those extra contributions before the recovery begins.
Will accessing your super early affect your insurance?
It’s always important to make sure that any life insurance you have through your super (including total and permanent disability, or TPD, insurance) matches your needs.
If you’re withdrawing your super early and want to maintain your insurance, you’ll need to keep enough in your super account to cover your ongoing premiums.
The insurance provided as a default (automatically) in your super is not suitable for everyone. Young people without any beneficiaries (such as children) may not want life insurance, for example.
However, default insurance in super offers an easy and accessible way to get cover automatically, often without the need for underwriting or health checks. Other insurers may refuse to cover you or increase the price of your cover if you have a pre-existing condition.
If you want to maintain your insurance, you’ll need to keep enough in your super account to cover your ongoing premiums
Josh Mennen, principal lawyer in superannuation at Maurice Blackburn, says that early withdrawals of super can lead to “unintended consequences” including the cancellation of life and TPD insurance provided automatically through super.
It’s important to assess your insurance needs before making an early withdrawal from super. New rules will apply to this insurance from 1 April, when cover will cut out for the following groups:
- People under 25 (unless you have a recognised dangerous job).
- People who have never had $6000 in their super account.
- Accounts that are considered inactive as they haven’t received any contributions for 16 months.
Check with your fund for any other circumstances which may cause your cover to cease.
If you fall into one of these categories your super fund should have contacted you to let you know. If it hasn’t, it’s worth contacting them to find out how you might be affected.
Scammers are offering to help people access their super – for a fee. But early access to super is done through the MyGov portal, and is free.
Scammers on the rise with new early access to super rules
Unfortunately, some unscrupulous people are taking advantage of the challenges of COVID-19 and are contacting people with offers to access super early for a fee.
Consumer advocates, industry bodies and super funds have warned that these unsolicited approaches are a scam.
At best, these scammers are offering expensive and totally unnecessary services. At worst, they’re attempting to steal your super.
We’d advise people to stay well away from anyone attempting to charge you a fee to help you withdraw your super early
Xavier O’Halloran, Super Consumers Australia
“Early access to super is free and can be done through the MyGov portal,” explains O’Halloran.
“Trying to scam people out of their super is disgraceful behaviour. We’d advise people to stay well away from anyone attempting to charge you a fee to help you withdraw your super early.
“If you get an unsolicited email about early access to your super, delete it. If you get an unsolicited call, hang up,” O’Halloran says.
Sarah Forman, group executive advice at First State Super, says people should exercise great caution with anyone unfamiliar offering to deal with your super. “Be wary of responding to groups making offers that are ‘too good to be true’ or groups that (you) are not familiar with,” she says.
Reporting scammers
If you’ve been approached by a scammer and would like to report it, you can go to the government website Scamwatch and enter a complaint about ‘investment scams’.
You can also let Super Consumers Australia know, so we can keep warning people about scams around early access to super. Contact Super Consumers Australia.
How to access your super early because of COVID-19
If you do decide that accessing your super early is your best option, you can apply through MyGov from 20 April. The government has promised that making withdrawals will be an easy process.
You may also need to check if you have enough for a withdrawal. Bear in mind that MyGov will only show your balance as of 30 June 2019.
For up-to-date balance information, you can contact your super fund directly. We recommend using online portals where available to save you waiting in phone queues.
