Early Release Super Scheme

The huge economic impact of the coronavirus pandemic has called for drastic measures to prop up businesses that have seen their revenues drop by more than 20% and support people who have had their hours reduced or lost their jobs.

One of the questionable measures implemented by the Morrison government was to allow eligible individuals early access to money in their superannuation funds. Under the government’s COVID-19 early release scheme you were allowed to withdraw $10,000 last financial year (applications closed June 30) and a further $10,000 this financial year. (applications can be made until 31 December, 2020) The money withdrawn under this scheme does not need to be included in tax returns, will not be taxed and will not affect Centrelink payments.

I know from speaking with people in Corangamite that many people are in dire financial situations and have no choice but to access their super early. Desperate times have seen thousands of Australians withdraw money from their super funds in order to survive. It is estimated that 500,000 Australians have completely emptied their super accounts and by the end of this financial year, $30-40 billion dollars will have been withdrawn under the early release program. It has been a lifeline for some who desperately need the money now to keep a roof over their heads and put food on the table.

If you are considering accessing your super early you need to know how it will impact you later in life. Taking money out of superannuation early will reduce your retirement income: the younger you are the greater the impact. Super is a long-term investment and the best gains come from keeping your money in super for as long as possible. On the upside though, the younger you are, the longer you have to recover financially, as long as you have a full- time job to keep your super contributions going afterwards.

Check carefully whether you are eligible before applying for early release of super. There have been reports of people who have applied, but provided misleading or inaccurate information. These people will now be facing penalties of more than $12,000, as well as the prospect of paying tax on the money they took out.

The early release super scheme has been riddled with problems, including fraudulent claims by organized and offshore criminals who gained access to people’s private details and then stole money from people’s super funds. The criminals were able to set up fake MyGov accounts after they deceptively obtained the personal details of more than 50 people. The ATO inadvertently directed super funds to make super payments to fraudulent accounts. The government has not yet made clear how these victims will be compensated.

If you opt for early release of super you need to know that you will miss out on the benefits of compound interest. Compound interest means that $20,000 today could increase to hundreds of thousands of dollars in 30 years’ time. (compound interest is when interest is paid not only on the principal sum, but also on interest already earned) It has been estimated by economists that the $30 billion dollars already withdrawn would be worth $130 billion in 30 years’ time.

Superannuation is supposed to provide income for you in retirement and because it’s meant to be a long-term investment, $20,000 today will be worth a lot more when you turn 65. This is thanks both to compound interest and balanced super funds. Australian Super, Australia’s largest fund, has returned an average of 9.76 per cent over the last decade. So, if you had $20,000 in super in 2020 and maintained that rate over the next 35 years, $20,000 would become more than $500,000. Missing out on potentially more than half a million dollars on retirement will have a big impact on your future lifestyle. It may mean you have to work for many years longer than you were planning to.

These figures will be no comfort to people who have no choice but to access their super early. However, if you understand the consequences of making that decision, you should try to make it an absolute last resort. If you do have to withdraw your super, develop a plan for boosting it again as soon as you get back in the workforce.

Investment markets have weakened in the last few months due to the pandemic and this has had an impact on super funds. If you withdraw your super when the market is down, you’re locking in a loss to your investment. The longer you can keep it in super, the better chance you have of waiting out the downturn and making gains when the market bounces back. Investing in super requires a long-term strategy over decades to get the maximum benefit from it.

Australia can’t afford to raid its super industry. Money invested in super is used for investment in infrastructure projects and businesses which generate wealth and create jobs. It’s critical that we keep this industry intact to drive growth and boost our economic recovery after the worst of COVID-19 is behind us.

The Morrison Government needs a plan to create jobs, not rob Australians of their retirement savings. By extending the early release scheme from 24 September to 31 December, the government is indicating that it has no confidence in their ability to address soaring unemployment.

Accessing super early is not a windfall or a bonus to spend on luxuries: some people misusing the scheme this way are robbing themselves of a comfortable future. I encourage everyone to explore all other options first before accessing super early: such as Jobseeker, Jobkeeper, any other Centrelink payments and rent relief. You may also be eligible for financial hardship arrangements through your bank, or your landlord. Additionally, utility companies have special arrangements for people who can’t pay their bills.

For those who are in financial hardship, struggling with day-to-day expenses, accessing super early may be an essential step and should be a guilt-free decision. If you need free financial advice call the National Debt Helpline on 1800 007 007.

For eligibility criteria and more information on the government’s early release super scheme, please visit this website.

This story was originally published in Libby's July Newsletter. Please click here to subscribe to the email newsletter.