Under normal, pre-COVID circumstances, accessing superannuation under financial hardship requires having been on government support for a minimum of six months, and being unable to meet short-term living expenses.
This measure is designed as a last resort, quite often to catch up on bills and mortgage payments that are well overdue.
Following the crippling impacts of COVID-19 in March, the Federal Government allowed individuals to access up to $10,000 of their super tax-free until June 30 and another $10,000 between July 1 and September 30.
The early access is available to people who are eligible to receive Job Seeker payments, Youth Allowance, Parenting Payment, Special Benefit or Farm Household Allowance.
It is also available to people who are unemployed and are not receiving government assistance, have been made redundant, have had their hours cut by 20 per cent or more and sole traders with a reduction in turnover of 20 per cent or more.
However, BDO Private Wealth Director Lachlan Kennett says the fear is that the current withdrawal eligibility is being used by people for discretionary spending rather than those essential, cost of living expenses.
“It is an unusual time politically, socially and economically, and the superannuation measures, (like a lot of others recently), are an example of ‘policy on the fly’,” he says.
“At a macro level it makes sense that the Australian Government would choose to use the large superannuation nest egg (some $2.7 trillion) to boost economic activity and support households.
“For some, the withdrawal will be timely and spent on essentials ensuring they do not fall behind financially.
“At the individual, or micro, level there is the risk of funds being used inappropriately and the impacts of those decisions being felt well into the future.”
Kennett says those thinking about drawing down on their super should consider a few key factors.
“For a person in their 30s, a withdrawal is likely to impact their final retirement balance by two to three times the amount withdrawn,” he says.
“Depending on investment returns, the impact on their balance could even be significantly higher.”
So, what should anyone looking to withdraw from their super do to mitigate the impact?
- Use the measure as a last resort: Have you taken advantage of all other relief measures available to you first? Have you put a hold on your mortgage, advised utilities and other debtors of your financial hardship, negotiated payment plans or holidays where possible?
- Repay it as soon as you can: If you find that you do need to withdraw from your super, consider making extra payments back into the fund as soon as you are able to do so to recoup some of the loss.
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