Accessing superannuation during COVID-19: Is it worth it and are you even eligible?
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Accessing superannuation is an option open to many Australians affected by COVID-19 right now, but is it worth it?
Australians affected by COVID-19 can withdraw up to $20,000 of their retirement savings to get them through the crisis.
Eligible people need to have been made redundant, had their income reduced by a fifth, be unemployed or receiving government payments. The government anticipates $27bn of withdrawals over the next two years.
Being able to withdraw superannuation in periods of extreme financial hardship is nothing new. But many will be doing it for the first time.
Tony Negline, superannuation leader at Chartered Accountants Australia, told Stockhead people should at the very least think before they withdraw. He also warns this may not be a good move for everyone.
“People are obviously impacted a lot by coronavirus and the economic downturn, they need money to get by,” Negline said.
“But you need to adequately assess where you’re at; why am I getting hold of it, do I need it to get by now? If the answer is yes, we have a conversation in play.
“If you don’t need it to get by, you need to think about taking it out, remembering superannuation is meant to maintain your current standard of living in retirement. You won’t be able to without long-term saving.”
Some industry experts have warned taking it out risks crystallising losses on the share market. This is because super fund managers invest in shares in an attempt to grow superannuation.
Withdrawing now means you might miss out on the benefits of any market rebound.
“The only time [share prices] are vital is if you have to take the money out. Then you’re crystallising your losses,” Negline says.
“Look at the GFC, it took our share market 12 years to recover from the height of the GFC. If we take the same period of time and you’ve got that time until retirement maybe you haven’t done too much damage if your contributions go in ahead.”
Of course not everyone is eligible to access their superannuation, but many ineligible people may still apply for their super. Industry Super Australia (ISA) today warned of a potential backlog as a result.
It estimates up to 40 per cent of applicants may not be eligible because they have not suffered hardship.
The ISA today called for the ATO to give clear warnings about the criteria and put deterrent measures in place.
“It is important that those that need to access their super can do so quickly, without being caught behind an administrative logjam of ineligible claimants,” ISA CEO Bernie Dean said.
“The Australian Tax Office has assured us there is a robust compliance regime in place and those who deliberately flout the rules could face severe penalties.”