The Australian Federal Government has announced an early access to superannuation scheme and part of their support package in response to Coronavirus. As of 20 April 2020, eligible citizens and permanent residents of Australia or New Zealand can apply to receive up to $10,000 out of their superannuation between mid-April and 1 July and receive up to a further $10,000 after 1 July for about three months.
Accessing your superannuation early may be a necessary step if Coronavirus has significantly affected you financially and you urgently require the funds to pay for essential living expenses. However, superannuation is required for retirement and dipping into your fund early will affect how much you have saved up for when you retire. The question now remains, should you be accessing your super early to pay down debt?
We’ve put together a number of risks you need to be aware of when considering accessing your superannuation early due to the Coronavirus crisis and alternative solutions which may help you pay down debt without decreasing your retirement fund.
Am I Eligible to Apply for Early Access?
To apply for early release of your superannuation, the Australian Government Treasury states that you need to satisfy any one or more of the following requirements:
- Be unemployed, or
- Be eligible to receive Government benefits such as 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, you were either:
- Made redundant, or
- Had your working hours reduced by 20 per cent or more, or
- If you are a sole trader, had your business suspended or experienced a reduction in turnover of 20 per cent or more.
The Risks of Accessing Your Superannuation Early
1. May Impact Your Retirement
Depending on what your current superannuation balance is and how close you are to retirement, accessing your super fund early could majorly affect the quality of your retirement. According to the Association of Superannuation Funds of Australia (ASFA) retirement standard, it is estimated that to retire comfortably a single person needs to have $545,000 in their super, whereas a couple need to have $640,000.
To estimate how much super you’ll have when you retire, you can access MoneySmart’s Retirement Planner. This will allow you to estimate how much money you’ll have to spend each year once you retire and how fees, investment options and contributions will affect your retirement income.
Industry Super Australia’s Early Access to Super Assumptions found that the long-term impact of withdrawing $20,000 of your superannuation early could cost you thousands in retirement savings. See table below.
| Age | Starting Balance | Super Withdrawn | Difference at Retirement |
| 25 | $20,000 | $20,000 | -$120,511 |
| 30 | $40,000 | $20,000 | -$97,214 |
| 35 | $60,000 | $20,000 | -$78,420 |
| 40 | $79,000 | $20,000 | -$63,260 |
| 45 | $95,000 | $20,000 | -$51,030 |
| 50 | $109,000 | $20,000 | -$41,165 |
Bernie Dean, Industry Super Australia’s chief executive told The Guardian that young Australians in financial distress should only access their super ‘as a last resort’ after exploring other options. He said “it is tempting to tap into your super early, some may want to do so as a savings buffer, but nothing in life is for free.”
“Cracking open your nest egg comes at a steep cost – it should be treated as a last resort.”
As of 23 April, the Australian Taxation Office (ATO) has already approved 456,000 applications for early withdrawal, totaling $3.8 billion. Labor’s Shadow Assistant Treasurer, Stephen Jones, told ABC News “this is a sign that a lot of Australians are doing it tough.” He is, however, concerned that granting Australians access to superannuation early will rob them of the compound interest built into the system.
“Unless you have to access your super, I’d encourage people to think twice about it. A small amount of money accessed today could be a big cost to your retirement savings down the track.”
2. Investments
Historically, staying invested in the share market over the long-term produces higher returns than attempting to move in and out of the market to try to capitalise on fluctuations.
Although the current state of investment markets has fallen due to the uncertainty around the economic impact of Coronavirus, accessing your super early and withdrawing funds from investments may affect the opportunity your money has to grow in value once investment markets recover.
3. Loss of Insurance Cover
It’s important to check with your superannuation provider to ensure that any insurance cover you have with them will not be affected by withdrawing super early. If you don’t have enough remaining funds to continue paying your insurance premiums, your account may be closed and your insurance will be cancelled.
Alternative Solutions to Pay Down Debt
1. Debt Consolidation
If your debts are out of control due to the Coronavirus, debt consolidation can help simplify your repayments. Consolidating multiple unsecured debts such as credit cards and personal loans into one, easy-to-manage repayment can reduce interest paid and free up money for other necessary expenses.
2. Informal Agreement
An Informal Agreement is a private agreement set up between you and your creditors that allows you to repay your debts affordably, without the need for a formal agreement. An Informal Agreement pauses interest and fees on your debts and puts a stop to harassing phone calls from creditors. In most cases, your credit report will not be impacted – allowing you to rebuild your savings without the need to rebuild your credit score.
3. Formal Part IX (9) Debt Agreement
Another alternative debt relief solution available to repay your debts without accessing your superannuation early is to enter into a formal Part IX (9) Debt Agreement. A Part IX (9) Debt Agreement is a legal and binding agreement between you and your creditors which outlines a new, affordable repayment arrangement to pay down your outstanding debts. Under a Debt Agreement, all interest will be paused and you can be debt free in as little as 3 years.
4. Personal Bankruptcy
Although Bankruptcy involves a number of regulations and restrictions on your lifestyle, if you’re suffering with severe financial hardship and not sure how to find a way out, Bankruptcy may be the solution. Declaring Bankruptcy allows you to clear your unsecured debts, stops creditor harassment and provides you with a fresh financial start.
Talk to a Professional
Although it may seem tempting to access your superannuation if you’re experiencing financial distress, it may not be your best option to pay down debt. Before making any decisions, it’s important to get in touch with a qualified expert at Revive Financial. We’ll assess your financial situation and provide you with the best solution to get out of debt without dipping into your retirement savings. Get in touch today on 1800 534 534 for a free 30-minute consultation.
