Nearly half a million Australians have been approved to withdraw a total of $3.8 billion (US$2.4 billion) from their superannuation (super) retirement funds since the Australian Taxation Office began to process the early access applications on April 20, Treasurer Josh Frydenberg announced at a press conference April 23.
“The Australian Taxation Office has approved 456,000 applications, totalling $3.8 billion,” said Frydenberg. “Those applications are now with the superannuation funds for their payment over the next five days.”
$20,000 Tax-Free
In an effort to provide further relief to those who are the worst-hit amid the economic downturn induced by CCP virus, the federal government introduced the early access policy in late March. Up to $10,000 can be withdrawn tax-free from superannuation funds this financial year 2019-20. A further withdrawal of $10,000 is allowed in the next financial year, starting July 1. This arrangement will be in place until September.Concerns Over Long-Term Financial Security
Despite the immediate relief from tax-free cash, taking out money now means super fund members will end up with significantly reduced savings by the time of their retirements due to the loss of compound interest benefit and missing-out on potential investment opportunities when the economy recovers.According to the calculation, a 30-year old member withdrawing $20,000 (US$12,700) over two years now could potentially reduce their superannuation balance at retirement (at age 67) by $50,000. For a 40-year old, the loss could be up to $39,000, for a 50-year old this would cost them $30,000, while a 60-year old will end up with a $24,000 reduction in their balance.
Withdrawing from your super now can only reduce savings at retirement which means less income.
The size of the impact is uncertain because it will depend on unknown factors such as the future rate of investment earnings on your super.
Super Consumers Australia Director Xavier O’Halloran warns that this may force members to give up on insurance in future.The move also sparked concerns that the drawdowns could weaken the superannuation industry as a whole.
Should Be a Last Resort: Advocates
Given the potential costs and risks, consumer advocate organisations are urging super fund members to exhaust all other options before dipping into their retirement savings.“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,” Super Consumers Australia Director Xavier O’Halloran said.
The message is echoed by CHOICE Policy and Campaigns Adviser Patrick Veyret, who reminded consumers that “accessing your super should be a last resort.”
He encouraged those in financial difficulties to contact financial counsellors, not financial advisers, for a free and independent service.
“They can help people navigate through financial hardship, access government payments, and assist with any debt matters,” he explained.
The advocates also warn of scammers, urging consumers to stay well away from anyone who offers to help them access their superannuation early, for a fee.
“If you get an unsolicited email about early access to your super, delete it. If you get an unsolicited call, hang up, “ O’Halloran said.