The superannuation industry is braced for a second wave of early withdrawal of super funds today – your last chance to dip into savings because of the COVID-19 pandemic.
If you choose to do it, you’ll be joining 2.4 million Australians who have already applied to the Australian Taxation Office for early access to their super nest egg, removing $17.1 billion as of June 21, according to the latest figures from the Australian Prudential Regulation Authority.
But it hasn’t been easy deciding. Many have pointed out that taking out early super means a big dent in retirement savings, with the Australian Super Industry calculating drawing out the full $20,000 allowed could cost up to $180,000 and mean an extra 6.5 years working past retirement to make it up.
In a bid to head off a second wave of withdrawals that has surprised everyone – not least the super industry – the Australian Taxation Office has warned it will be cross-matching claims to stop those who haven’t suffered hardship taking out their money.
The ATO will get data from Services Australia to see who claimed what from the Government between April and September.
Up to three million individuals will be checked on a monthly basis between June and October.
The ATO said the program will allow it to “verify eligibility” for the JobKeeper payments, temporary early access to super or the cash flow boost to understand whether payments were falsely obtained.
The big losers in the scheme so far are the country’s largest industry funds, including AustralianSuper, Sunsuper, Hostplus, Rest and Cbus, who lost about $8.1 billion.
More than half those taking out the money were below 35 years of age.
Those from Queensland, Western Australia and New Territory had experienced a bigger proportion of withdrawals because of their heavier reliance on the tourism industry.
To be eligible, you have to be unemployed, be on JobSeeker, have reduced work hours by more than 20 per cent or you are a sole trader and your business has suffered 20 per cent or more.
According to the Industry Super Australia modelling, a typical man who draws down the maximum of $20,000 allowed, will lose $180,000 in retirement savings.
To make up the difference, he will have to work an extra 6.5 years past retirement age, to 73.5 years. A woman will lose $150,000 and have to work another eight years, until she is 75 to make up the difference.
“These are really significant impacts in the longer term for people,” said Greg Combet, who chairs Industry Super Australia and IFM Investors.
“It might be worth accessing if you genuinely think you can’t live day-to-day and you don’t have an alternative,” said UTS academic Rosalie Degabriele who specialises in superannuation.
“It’s not a goldmine. It’s not a windfall,” she said.
Essentially it is “robbing” your retirement savings because you are missing out on the benefits of compound interest, she added.
But if you are cash-strapped because of COVID-19, early withdrawal of super funds will help you get out of a financial hole. The scheme is meant to provide Australians with a “lifeline.”
So what can you do with the extra funds from your super nest egg?
According to AMP, the funds can be used for compassionate reasons. These include:
- Paying for medical treatment for yourself or a dependent.
- Making a mortgage payment to prevent the forced sale of your home.
- Palliative care for yourself or a dependent.
- Modifying your home with disability aids because of a severe disability suffered by yourself or a dependent.
- Expenses associated with the death or funeral of a dependent.
Early withdrawal of super funds is not supposed to be splurged on discretionary spend like gambling, clothes or supermarket purchases.