Early access to super should be your last resort, say super experts

Exhaust every other stimulus measure before accessing your super, say super experts.

five dollar note showing the queen wearing a surgical mask

The government’s plan to allow Australians early access to super to help them through the coronavirus pandemic should be a last resort, says the convenor of the Actuaries Institute’s Superannuation Practice Committee, Tim Jenkins.

While Industry Super Australia (ISA) has said it will work hard to ensure members have access to their super in line with the government’s recently announced early access scheme, it, too, is concerned early access will have long-term detrimental effects on members’ savings.

For some members, though, short-term financial survival might rely on their ability to access up to $20,000 from super, as the scheme allows. 

“Analysis shows a 20-year-old who accesses the full $20,000 available under the scheme could lose more than $120,000 from their retirement balance,” says ISA.

“A 30-year-old who accesses $20,000 from super now could lose about $100,000 when they hit retirement and a 40-year-old could lose more than $63,000.”

ISA suggests Australians should exhaust all other wage stimulus measures, including increasing welfare support payments, before tapping into their super.

“Members should tread carefully and only think about cracking open their super after they’ve taken up the extra cash support on offer from the government. Super should be the last resort given the impact it can have on your retirement nest egg,” said ISA chief Bernie Dean

“Taking your super now is like selling a house at the bottom of the market – you’ll lose money you would probably claw back over time.” 

Mr Jenkins agrees.

“The new policy could indeed exacerbate the losses super is facing if funds are forced to sell assets,” he told YourLifeChoices.

“This is quite likely as some superannuation funds will be affected more than others, such as those that cater for hospitality and retail sectors.

“If super funds are forced to sell assets to meet the payments, they will not only be locking in the losses to date on these assets, but this also could drive the price of assets down further as the funds will likely all be selling at the same time. Supply will exceed demand – in a market that is already low in confidence.”

Mr Jenkins said short-term demand from investors for early access to their superannuation could exceed $25 billion if 1.35 million working Australians each accessed the full amount of $20,000.

The Australian Tax Office (ATO), which would decide who can have early access to their super, could also distribute payments, and possibly invoice superannuation funds, which could spread the impact of withdrawals over time.

“There may be a need for the funds and the government to look at ways to enable early access and smooth out the ability and capacity of funds to pay,” said Mr Jenkins.

“A possible solution is for the ATO, in addition to making the determination, to distribute the payments to further streamline the process to get money into the hands of those in need quickly.

“The ATO could then invoice the superannuation funds over the following few months to spread the cash flow impact on funds.

It is up to the government to make difficult financial decisions to balance the short-term health and economic risks to the community against the long-term effect on retirement incomes, said Actuaries Institute chief Elayne Grace.

“Early access to super will help ameliorate some of the short-term pressures people, their families and their communities face,” Ms Grace told YourLifeChoices.

“We know large parts of the community have insurance through their super fund. We want people to have access to their funds, to help them through very difficult times, but it is important to know and map the consequences.

“The Actuaries Institute would encourage the government to commit to restoring and maintaining the integrity of the retirement income system after the crisis ends.”

Will you need to access some of your super? What do you think of the plan to allow early access to super?

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    COMMENTS

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    30th Mar 2020
    10:34am
    Our Super money does not belong to the government! We should be able to access our savings at our own risk at any time and blame ourselves only for the decisions we make.
    On the Ball
    30th Mar 2020
    11:32am
    Correct, however we must also be protected from ourselves.
    Many (say) under 35's dont even think of retirement or how they will fund it. So the temptation to draw some out is huge. But the figures above (re how much various age groups would lose in retirement savings) doesn't count another factor: The later (older) a person draws down on super, menas the less time they have to make it up. Most wont...
    Leaving a much larger burden on the pension system. Ergo, less pensions for everyone.
    Add to all this is this Government's perchant for dismantling the compulsory superannuation system (whether for no other reason as Labor started it).
    Must be tempting to "spend now and bugger the furure"!
    Mariner
    30th Mar 2020
    12:16pm
    Leaving in super could also mean there is going to be nothing left when the crisis is over. Would take it out as a 35-year-old.
    inextratime
    30th Mar 2020
    12:17pm
    You miss the whole point HKW. Super is there to provide an income source in retirement.
    So if people spend it now, they will reduce their income opportunity when they retire.
    That means they may have to rely on the government to subsidise them in their retirement a situation that many are faced with right now and continually claim that it is not enough.
    inextratime
    30th Mar 2020
    12:19pm
    Mariner, everyone has the opportunity to put their super balance into cash right now. So it will not decline through this period of uncertainty.
    KSS
    30th Mar 2020
    1:16pm
    This is just the next in a long line of demands to access super before retirement, (health costs, mortage/deposits). Whilst these are extraordinary times, I do not agree that anyone should be able to withdraw up to $20,000 now or next financial year unless there is a guarantee they will repay the money.

    Superannuation is not meant to be a handy savings account to be used as and when the account holder chooses. The sole intention of that money is to support you in retirement. All other avenues of financial assistance must be completely exhausted before any consideration of dipping into those funds is undertaken.

    We know from today, mortgage holders will be given 6 months breathing space, renters will not be able to be evicted for non-payment of rent if they have lost their jobs. Rent and mortgage are the two largest bills most people have. Even school fees could/should be negotiated for those who chose to send their children to private schools. There are a raft of support payments available for those who have lost their jobs and they should make full use of them.

    Those who were already on government support payments have no changes to make. Their life has not changed financially in any way at all. In fact many will even be better off because of the two $750 payments that were coming before the coronavirus changed the job market.There is no need for any of them to be looking to access super. And that includes all those who were on newstart, aged pensions, carer support payments or a raft of any other welfare payments.
    Tanker
    30th Mar 2020
    1:51pm
    Inextratime moving a super balance into a cash option now means that the reduction in its value will result in a significant loss. That is at the moment the reduction in value is not a loss until it is transferred into cash. Given time when things, hopefully pick up, the balance will increase again whereas in converted to cash it will not increase.
    Tanker
    30th Mar 2020
    1:51pm
    Inextratime moving a super balance into a cash option now means that the reduction in its value will result in a significant loss. That is at the moment the reduction in value is not a loss until it is transferred into cash. Given time when things, hopefully pick up, the balance will increase again whereas in converted to cash it will not increase.
    older&wiser
    30th Mar 2020
    11:47am
    'Could'? It already has. Decimated my meagre super. And I don't blame the govt, blame lies solely with the Chinese. I am absolutely devastated. Single, worked hard in low paying jobs, never on welfare, forced from last job by bully boss from hell (my doctor said 'make the choice; walk, or end up in a coffin) 2 years ago. From being able to live frugally and cover my bills, now I am in dire poverty.
    Big difference between living and existing...
    Tanker
    30th Mar 2020
    1:57pm
    Actually the Chinese cannot carry all the blame. Chinese manufacturing only grew the way it has because Western Corporations pushed Globalisation so they could build factories in China to take advantage of the low cost of labour. This of course increased the Corporation's profit which was the whole reason for the exercise.
    In time when labour costs in China increase to a certain level those same Corporation will shift their production to a lower cost country away from China.
    It is called Capitalism.
    Tanker
    30th Mar 2020
    1:57pm
    Actually the Chinese cannot carry all the blame. Chinese manufacturing only grew the way it has because Western Corporations pushed Globalisation so they could build factories in China to take advantage of the low cost of labour. This of course increased the Corporation's profit which was the whole reason for the exercise.
    In time when labour costs in China increase to a certain level those same Corporation will shift their production to a lower cost country away from China.
    It is called Capitalism.
    debbie64
    30th Mar 2020
    1:08pm
    I haven't had a choice I'm an older casual worker under pension age whose hours have dropped significantly due to the Corona Crisis I don't know how much longer my job is going to last I have to keep a roof over my head and I'm sure Centrelink will make me wait longer because of it I want to work as long as I can
    ozirules
    30th Mar 2020
    9:50pm
    I pulled my super out after the gfc because I wanted control of my own assets. My money managers kept getting paid even when I was suffering great losses so I pulled the pin, withdrew my money and bought property. I have slept much better since and the property I bought has done better than my super would have done. I pay no management fees and I dont have the jitters every time the stock market farts. I have some privately owned shares so I am diversified but worst case scenario is I own bricks and mortar which wont disappear overnight. I started my working life before super was invented and quite frankly I dont trust it and I'm well out of it. Money managers are like lawyers, similar to but not as essential as arseholes.
    aussiecarer
    30th Mar 2020
    10:48pm
    I hope the people who are being promised the Centrelink benefits get them. Our son enrolled in TAFE as a full time student in January this year. It's the end of March now - and he is still waiting for his first study payment. The MyGov site is no help. It just says his application is being processed.


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