Experts assess impact of early super access on earnings and income

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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