The coronavirus has left many people in financial hardship. But even before the global pandemic hit Australia, I have seen several clients panic about the future of their business or the decline of their personal wealth.
I am also very fortunate to have many clients that whilst they are concerned, they are also well educated enough to make the most of the very harsh and volatile times. I receive emails and phone calls daily from client’s requesting more information on accessing superannuation.
I also get requests from clients on how to withdraw super early, and even questions about how to move more of their money into their superannuation fund. While both accessing superannuation, withdrawing super early, and contributing to superannuation in this current climate are necessary, it is important to understand the implications that come with it.
As part of the Government Stimulus Packages that have been announced over the past month, accessing superannuation has been one of the main initiatives to provide Australians financial relief by accessing super early.
The financial hardships caused by COVID-19 have resulted in people losing their jobs and businesses closing and as a result, accessing super has become a very real decision.
But before you make a decision, it is important we review the implications of accessing superannuation.
The Australian economy has taken a big hit and the Australian Stock Market has been reduced by a substantial amount. Most Australians have a large sum of their superannuation invested in the Australian Stock Market.
If you decide to withdraw super early, then a loss of money is likely to occur. A common phrase used in this context is – ‘The Crystallising of Losses”.
If a client purchases a house then the property market drops, then the client sells the property, the result is likely a capital loss. The exact same applies with superannuation.
Some people believe that accessing superannuation and contributing to it later will make up for withdrawing their super early. However, this is unlikely to happen because it is left up to chance. We can’t be certain when to contribute back into the fund and if we will see the same returns.
The Australian Stock Market is currently cheaper to buy into while the economy is down. Many individuals see it as an opportunity to contribute money into their superannuation now.
These investors will naturally capitalise on other investors who have left the stock market to access their superannuation fund.
Based on the Australian Government Stimulus Initiatives, individuals accessing superannuation, if they are entitled to it, will not likely suffer a loss on their invested money. However, they will likely not get the growth of the Stock Market, once COVID-19 passes.
If you consider accessing superannuation, it is important to be mindful of the member account balance that needs to be maintained for the insurance policies to be maintained within the super fund.
Many individuals hold Life Insurance policies, Total Permanent Disability policies and Income Protection Policies through their superannuation account and if minimum requirements aren’t met, insurance policies can be automatically cancelled.
In 2019, superannuation funds implemented new rules to cancel member policies when minimum requirements weren’t met including, maintaining a minimum account balance of $6,000, electing to ‘Opt-in’ to the superfunds insurance policy, as well as policies being cancelled due to age restrictions.
It is important for individuals to know how accessing superannuation can affect their overall investment position. The maximum amount that can be withdrawn is $10,000 in both the financial years of 2020 and 2021, with each member getting access to two withdrawals. The withdrawals can be requested via the individuals MyGov account if some basic criteria are met:
- The claimant is eligible to receive the ‘Job Seeker’ payment, Youth allowance payment, Parenting Payment, Special Benefit or Farm Household Allowance.
- Those that have had a reduction of 20% of their work hours or their business has reduced by a minimum of 20% in turnover since January 2020.
The application can be made for the Superannuation payment from the 20th April 2020.
We hope this helps you navigate the question of accessing your superannuation. Before you make a decision, it is extremely important and highly recommended to seek Financial Advice from a trusted advisor with superannuation experience. As an individual or business owner, be sure to understand the specific impact that accessing superannuation will have on your overall superannuation investment.