Early dip into super could leave you cold

Fancy going for an early dip? You might want to think twice. By the way, I’m not talking about a morning ocean swim here, or laps in the pool before breakfast. (That’s not something I’ve ever fancied – even in summer.) The early dip in this case is into your pension or superannuation fund.

A recent survey has revealed that some retirees regret having withdrawn money from their pension accounts before leaving full-time work. The UK survey took in 1050 respondents, all aged over 55, and 8 per cent of them expressed regret at the decision.

The survey also found that taking an early dip into pension funds was by no means a rare occurrence. As many as 28 per cent of those surveyed withdrew pension cash between age 55 and finishing full-time work. They did so either as a lump sum or via income drawdown.

Why the early dip? And why the regret?

Perhaps the most revealing element of the survey, conducted by retirement specialist Just Group, was a question regarding financial advice. Of those who made the choice to take an early dip, almost half did so without first receiving any advice.

Making any significant decision around finance without prior advice is not something any financial expert would recommend. It also begs the question of whether support was available to those making those decisions. Or if they were aware of such availability.

Stephen Lowe, group communications director at Just Group, described the findings as concerning. “It’s alarming that a significant portion of retirees are diving into their pension before leaving full-time work without the benefit of any financial advice or guidance,” he said.

That’s not to say that taking an early dip into a pension fund is necessarily the wrong decision. After all, the 8 per cent regret rate highlighted in the research suggests that 92 per cent did not have regrets.

Indeed, such a decision in light of recent global financial stresses may have been the best of all options, said Mr Lowe. “The cost-of-living crisis, rising rent prices and hiked interest rates have all put a significant strain on household finances,” he said. “For many, pension cash has been a valuable financial resource to fall back on.” And particularly  for those who faced health problems or redundancy prior to retiring, Mr Lowe continued.

Nevertheless, the rate of regret may have been lower still had those who made the decision without prior advice received some.

It’s important to remember that the Just Group research surveyed citizens in the UK, which has different laws around pensions. Making an early dip into superannuation funds in Australia is heavily restricted and requires applicants to jump through a series of administrative hoops.

In Australia

That said, the principles remain the same here. Outlining potential pros and cons and exploring possible alternatives through a registered financial adviser could alleviate later regret.

“Just because you can, doesn’t mean you should,” said Alison Banney, from Finder comparison site, speaking to Money. “You risk wiping tens of thousands of dollars off your retirement fund.” The same article highlighted the case of Cassie, a woman in her 40s. Though she accessed her super early on legitimate medical grounds, she later regretted doing so.

“It’s inevitable that without advice and guidance some people will make decisions they’ll come to regret,” said Mr Lowe.

That applies in the UK and Australia. An early dip into your super might well be the right move for you. To make sure, though, seeking advice from a registered financial adviser first is something you likely will not regret.

Has the recent cost-of-living crisis led to you considering an early dip into super? Did you seek professional advice before making your decision? Let us know via the comments section below.

Also read: Modernising super could be a win for all Aussies

Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Andrew Gigacz
Andrew Gigaczhttps://www.patreon.com/AndrewGigacz
Andrew has developed knowledge of the retirement landscape, including retirement income and government entitlements, as well as issues affecting older Australians moving into or living in retirement. He's an accomplished writer with a passion for health and human stories.
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