It is very clear that there’s an extraordinary amount of changes due to the Coronavirus (COVID-19) health crisis. We have all been impacted financially and several of us are seeking information in regard to how the superannuation and retirement system can be of assistance during this critical time.
Key points about the Australian government’s super early access scheme:
In response to the impact of COVID-19, the federal government has announced new stimulus packages. Now, there is the possibility for Australian’s to gain early access to their superannuation fund.
Depending on your super balance, you may be eligible to apply for the early release of a payment up to $10,000.
To be eligible, citizens or permanent residents of Australia and New Zealand must require the early release of their super to assist them to deal with the adverse economic effects of COVID-19.
One of the following circumstances must apply (as cited by the Australian Taxation Office):
- you are unemployed
- you are eligible to receive one of the following
- JobSeeker payment
- Youth Allowance for job seekers (unless you are undertaking full-time study or are a new apprentice)
- Parenting payment (which includes the single and partnered payments)
- Special Benefit
- Farm Household Allowance
- on or after 1 January 2020 either
- you were made redundant
- your working hours were reduced by 20% or more (including to zero)
- you were a sole trader and your business was suspended or there was a reduction in turnover of 20% or more (partners in a partnership are not eligible unless the partner satisfies any other of the eligibility).
For more information in regard to assessing your eligibility, please visit Australian Taxation Office (ATO).
It is very important to check your super balance prior to applying through the Australian Taxation Office. It is essential to check that you have enough funds to cover your payment requests.
What are the benefits:
- Any payments made through this early release scheme will be tax free.
- Accessing super funds early will not impact access to social security payments. The funds withdrawn will not be counted as income payments and therefore do not impact your additional allowance received from the government.
- Useful if experiencing distress due to financial situation.
- Supporting your family and yourself during this crisis.
- Assisting businesses with their essential expenses – most especially sole traders.
What are the disadvantages:
- Withdrawals from your super fund during a market downturn such as this could result in realising current market losses, without giving your superannuation sufficient time to recover – this will of course depend on your age as well.
- Retirement savings will be reduced significantly. You could well be giving up the gains of a future market recovery. Additionally, it’s important to understand the potential compound return over the course of the next 10, 20 and 30 years on the amount that you have subsequently withdrawn.
- You will also have to bear in mind that if you do not have enough funds in your super to cover the costs of insurance premiums, your insurance will cease. There is also difficulty in reinstating insurance in the future at the same levels after it has been cancelled.
It is important to consider seeking financial advice before submitting your application to the Australian Taxation Office for the early release of your super.
Please don’t hesitate to get in contact with our team at Plutus Financial Guidance. Our Financial Advisors will be pleased to assist you with this critical decision-making process.