The COVID-19 pandemic brought about unprecedented challenges, leading many Australians to make tough financial decisions, including accessing their superannuation early.
With the dust settling and life gradually returning to normal, those who took advantage of the government’s early super-release scheme now face another dilemma: should they replenish their retirement funds, and if so, how?
During the height of the pandemic in 2020, the Australian Taxation Office (ATO) approved early superannuation access for over 3 million individuals, amounting to a staggering $37.8 billion.
This emergency measure allowed Australians to withdraw up to $20,000 to help navigate the financial turmoil caused by COVID-19.
However, the scheme did not require repayment of the withdrawn amounts, leaving many to wonder about the long-term impact on their retirement savings.
The decision to access super early was not taken lightly, as the potential loss over time can be significant.
For instance, if you withdrew the maximum of $20,000 in April 2020 and your fund’s balanced option returned 18 per cent the following year, you missed out on $3,600 in returns.
Over 30 years, assuming an average annual return of 7 per cent, that $20,000 could have grown to approximately $152,000, meaning a total potential loss of $132,000 from your retirement nest egg.
Rebuilding your superannuation is not just about making up for lost time; it’s about taking advantage of compound interest and the relatively low tax rate on super contributions.
Ketvi Roopnarain, a financial literacy advocate and accountant, emphasised the importance of understanding the long-term implications of withdrawing super early.
She pointed out that even small additional contributions can significantly boost your retirement savings due to the compounding growth over time.
Senior economist Matt Grudnoff explained that the first dollar you put into your super account is the hardest working due to the interest or investment returns accumulated over the longest period.
Therefore, withdrawing funds early can substantially impact your balance. Grudnoff advised that putting money back into super can be very beneficial, and the sooner you start, the better.
For those looking to replenish their super, the federal government’s COVID-19 re-contributions scheme allows individuals to make personal super contributions until 30 June 2030 without these contributions counting towards the non-concessional contributions cap.
However, it’s important to note that you can’t claim a tax deduction for these re-contributions. To start making payments, you’ll need to complete the ATO’s COVID-19 re-contribution form and provide it to your super fund when making your contribution.
Roopnarain suggested using tools like the Moneysmart superannuation calculator to determine potential contributions and their impact on your end balance.
‘While the early release scheme provided emergency short-term relief during the pandemic, it’s essential to view your superannuation as a long-term investment for your future financial security,’ she explained.
Roopnarain also recommended discussing re-contribution options with your super fund to find the best strategy for your situation.
In addition to general information, seeking personalised financial advice is highly recommended. Grudnoff stressed the importance of professional guidance tailored to your specific circumstances, especially when making decisions that affect your long-term financial well-being.
Although the pandemic early release scheme has ended, Australians can still apply for early super access under certain conditions, such as severe financial hardship or medical reasons.
‘The difference during the pandemic was you just had to say “I want to withdraw my super” and you could do it,’ Grundnoff said.
Unlike the pandemic scheme, these applications require proof of circumstances and are subject to assessment by your super fund. The maximum amount that can be withdrawn for financial hardship is $10,000.
Have you accessed your super early? What are your plans for replenishing it? Share your thoughts and strategies with us in the comments below.
Also read: Are you falling for this tax claim mistake? ATO urges caution
Personally, I did not participate in the withdrawal during Covid. However, many people since then have had their cost of living increase substantially without subsequent wage rises to compensate. Therefore, they do not have the means to re-contribute what they took out.