Experts assess impact of early super access on earnings and income

You can access super within five days, but at what cost to your future income?

mouse trap shut on an australian fifty dollar note

Super funds have seesawed between saying they have no liquidity problems to saying they can give you access to your money whenever you need it.

Regardless, the federal government has told super funds it expects people should be able to access their super within five days, says a report from Nest Egg.

The Australian Prudential Regulation Authority (APRA) has offered ‘guidance’ to Australian super funds on making early-release payments to members, who meet the eligibility criteria, as soon as practicable.

“This is an opportunity for the super funds to demonstrate their commitment to their members at the time they need it the most,” said assistant minister for superannuation, financial services and financial technology, Jane Hume.

Implemented as part of the second COVID-19 economic stimulus package, the early access scheme should help Australians suffering financial hardship, allowing them to access $10,000 from their super this financial year, and a further $10,000 next financial year.

“Given the importance of cash flow for many people at this critical time, the Morrison government expects super funds to be paying members their money as quickly as possible, and within five business days,” said Ms Hume.

“We understand this is a very challenging time for all Australians. These measures will ensure that Australians impacted by the COVID-19 pandemic will receive this vital financial support as quickly as possible.”

While funds have openly supported the hardship assistance scheme, many are still cautioning Australians on the potential impact of accessing super early, suggesting that anyone undergoing hardship may be better off exhausting all other assistance measures first.

More than 600,000 members are expected to access their super early. The challenge for super funds will be to grant this access and, at the same time, mitigate the long-term outcomes for members, says Super Consumers Australia (SCA).

Members need to weigh up not only their immediate needs, but also their long-term futures when deciding what is right for them, says SCA.

“When weighing up whether to access your super early, it is a good idea to balance your whole household’s financial needs now and in retirement,” said SCA director Xavier O’Halloran.

“Members should also consider the insurance needs, as early access may leave them without enough superannuation to continue paying for insurance premiums in super.”

The super advocate highlighted how, should members wish to withdraw funds, selling low now will crystallise losses and any money spent today will not compound for tomorrow.

“Taking out money before retirement means losing the benefit of compound interest over a lifetime. Depending on how old you are, withdrawing money now could see you having to work much longer to make up the difference before you retire,” said Mr O’Halloran, who added that any reductions to super balances today, means less income in retirement.

While no one can accurately predict how much early access will impact future earnings, The Conexus Institute, Actuaries Institute and SCA have made best estimates based on the assumption an investor withdraws the full $20,000 now.

Someone currently aged 30 would see a reduction of $50,000 in their retirement balance. At the other end of the scale, someone aged 60 would see a reduction of $24,000, with a reduction in fortnightly income of $52 and a reduction of $1300 in annual income.

Do you intend to access your super early? Or will you try to ride it out?

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    COMMENTS

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    Chris B T
    20th Apr 2020
    10:47am
    No liquidity problems, "$6,000,000,000" in a week to 2 week period of withdrawals.
    I hope so and Crystallising your withdrawal on how the Individual's Investments were.
    Multiple Super Funds some have more liquidity than others and there are those who are in retirement Phase withdrawing funds interesting times.
    Greg
    20th Apr 2020
    11:18am
    $12B over the year but that's only 0.4% of super balances - I'm sure they'll manage.
    Chris B T
    20th Apr 2020
    1:03pm
    Yes when times are Good, there are so many variables. Companies on brink of going bust, not paying dividends or reducing dividends, stock values dropping . Deposits from Employers/Employees as not employed or leave without pay, deferred payments.
    No cash flow in as before Covid 19, 0.4% could easily be far greater as value depletes.
    Cash on hand to payout all at once, then next round after July 1.
    Yearly statement will be telling.
    Horace Cope
    20th Apr 2020
    11:07am
    I don't think that people who cannot put food on the table will care too much about the effect that an early withdrawal from their super fund will make. This factor has been overlooked in this article which is all about the future, not the here and now.
    Sundays
    20th Apr 2020
    12:41pm
    For some people there is no other choice. Job seeker and job keeper may not be eneough to help a struggling family

    20th Apr 2020
    11:13am
    This is the site you need for independent advice.

    It has a calculator that shows the value of your withdrawal in today's dollars.

    https://moneysmart.gov.au/covid-19/accessing-your-super

    20th Apr 2020
    11:17am
    Why not take it out of you can as it's tax free? Then you can put it back in as salary sacrifice and only pay 15% tax on the money instead of your marginal rate. If unit prices stay the same or fall you make a few extra dollars. Depending on how much you save prices can increase and you will still come out in front. Do you sums.
    Rod63
    20th Apr 2020
    11:57am
    "Super funds have seesawed between saying they have no liquidity problems to saying they can give you access to your money whenever you need it."

    Leon that;s not seesawing. They are both the same thing! What did you really mean?
    johnp
    20th Apr 2020
    6:41pm
    Rod63; agree with you.
    Also re
    "Someone currently aged 30 would see a reduction of $50,000 in their retirement balance"
    Over a period of 37 years, that is a very poor performance or return !!
    So overall a a badly researched article.
    Rod63
    20th Apr 2020
    12:01pm
    It would not be such a problem for people who take it out now if they paid it back in as soon as possible when things improve.
    But will they?
    I bet most won't.
    KSS
    20th Apr 2020
    1:46pm
    Agree they won't pay it back, and will later moan about it.
    floss
    20th Apr 2020
    12:43pm
    Not a good idea at all super is not meant to be used this way.A run on super what next a run on the banks sounds silly, just look at the way some people have attacked the super markets.
    KSS
    20th Apr 2020
    1:51pm
    Agree floss. Taking money out of super should be an absolute last resort for extraordinary circumstances. This is not a short term loan (which incidentally may well be a better financial option currently, or even an additional $10,000 on the mortgage) but one with long term ramifications.

    Just think what could have happened if just a few months ago those that were demanding super access for home deposits!
    Anonymous
    20th Apr 2020
    3:37pm
    If you have a mortgage take the money out of super and reduce your mortgage. It is far safer off your mortgage than left in super.
    cupoftea
    20th Apr 2020
    1:15pm
    I lost $35,000 and I am not able to spend it but with $10,000 I can
    Bakka
    20th Apr 2020
    3:36pm
    Not sure there wont be any liquidity problems for some fund investments when they have to liquidate to pay out .
    Hostplus ( and others) have had some very good performing funds focused on unlisted infrastructure. They have already flagged "unit value reductions for so called prudent reasons" and this before any actual member withdrawals.
    I think we have to watch this space very carefully ... a lot more to play out and the financial consequences will not be immediately obvious for some of these super funds.
    Also concerns as to how some will actually spend their withdrawals.. The concept is sound from the government , however not to many checks and balances.. not all will spend this windfall wisely I fear.
    Eddy
    20th Apr 2020
    4:16pm
    Rather than withdrawing super from funds it may have been better for the government to allow banks to accept superannuation as security for low interest loans. With most super funds being affected by the market downturn, once the market returns to more normal conditions (ie funds earning in excess of 5% pa) the value of $10k now could be many times that by the time people reach preservation age. In todays low interest environment it seems to me that long term financial sense is to keep your super intact and take out a loan.
    Rod63
    20th Apr 2020
    4:49pm
    Very, very sensible!
    Chris B T
    21st Apr 2020
    8:59am
    The option to withdraw $10,000 now with another after 1 July is to help out now.
    The need to cover all manner of Costs/Reasons because of loss of income is a Individual need.
    This commentary on Projected loss of earnings on this money is not going to help anyone when the need is now.
    No one can Predict the Potential Earnings, it is a Possibility just as this Situation now we are in.


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