A great deal can happen in a short space of time.
Covid-19 numbers are rocketing across the globe, with no countries being spared.
Unemployment is rising in Australia, Singapore and all over.
Governments are responding with stimulus packages and support payments to those who are unemployed and financially impacted by the spread of the virus and economic declines.
The key support mechanism we’re focusing on this week is the Australian Government’s decision to allow those who are ‘financially impacted’ by Covid-19, commonly known as the Coronavirus, to access $10,000 from their superannuation funds without tax or financial penalty, at least in the short term. There is no doubt that this is going to lead to some extremely poor long-term financial outcomes for many families across the country, but we’ll get to that.
What is the criteria to gain access to the $10,000
To be eligible for the early access to superannuation program, you must meet one of the following criteria:
- Either you’re now unemployed
- you’re eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment, special benefit or farm household allowance.
- on or after 1 January 2020
- you were made redundant
- your working hours were reduced by 20 per cent or more
- if you’re a sole trader, your business was suspended or there was a reduction in your overall business turnover of 20 per cent or more.
This is a self-assessment, and applications are made via the Australian Tax Office (ATO), rather than the individual superannuation fund, and the ATO will make a decision as to whether the applicant meets the criteria.
As you can see, the criteria is incredibly broad, and a fluctuation of 20% in a business’ overall turnover may actually apply to the vast majority of businesses across the country. While I certainly recognise and appreciate that many individuals and households across the country will sadly lose their jobs, and face heightened financial stress, there will also undoubtedly be a great deal of ‘rorting the system’ taking place. The criteria very clearly needs to be tightened at the very least to avoid this trigger response simply resulting in us ‘kicking the can down the road’ and facing an even greater financial problem in the years to come.
How to apply for the early access of $10,000
To apply for the early access program, this will be completed through your myGov account, which is accessible here. The launch date is expected to be mid-April this year (2020), unless there are any changes made to the program prior to this. Once you have submitted your application via the ATO, they will advise you of the outcome, confirm your bank account details and arrange for the payment of $10,000 from your superannuation fund to your account.
This appears to be a relatively straight forward process, however the most important question is whether you should actually be looking to draw from your superannuation fund at all, particularly given that we are at a very low point in the market.
Should I consider accessing my $10,000 from my superannuation fund
Withdrawing superannuation before retirement could result in a financial disaster for many, but just how bad could it be. Let’s consider a simple example, of a superannuation fund generating a return of 8% over time to explore just how much interest or gain you would be giving up at age 65 if you withdraw $10,000 today.
As you can see, the results are staggering, and could be the difference in retiring comfortably or needing to live off the pension because of a short-term decision you’ve made today. While the financial results could be painful, let’s explore what else you might want to consider.
Would a superannuation withdrawal effect my insurance
If you currently have a relatively low balance inside your superannuation fund, a withdrawal of $10,000 could mean that you no longer have a sufficient balance inside your fund to pay for your insurance. This could result in the cover lapsing, which may not sound like a big deal to some people, however it could mean that due to pre-existing conditions you can no longer obtain the same cover, it may be significantly more expensive or that particular insurance may not be available to you anymore.
It’s critically important to seek advice on your insurance in particular before making any decisions regarding changes or withdrawals from your superannuation fund.
Can Australian expats obtain the early access
Based on the criteria outlined above, it is highly unlikely that any Australian expats would be eligible to withdraw the $10,000 from their superannuation. Given the historically low Australian Dollar (AUD), tax efficiency of superannuation particularly for those Australian expats planning to retire down under, and relatively low cost of Australian super, it may not be advisable in most cases even if Australian expats were eligible for the withdrawal.
What should I do now
If you truly are facing financial hardship, and you have exhausted all other options to meet your ongoing financial obligations, the early access to superannuation may be a sensible course of action for you to proceed with. I recognise that the spread of this virus is going to take an economic toll on many families.
For those that may not be terribly impacted financially, one option that you may wish to explore if you do meet the criteria is a re-contribution strategy over time, by withdrawing the $10,000 from your superannuation today with the view of salary-sacrificing this back into your superannuation fund as the economy improves and your working hours or business income picks up. Given that there are tax implications of such a strategy, I would certainly recommend that you consult your financial and/or tax adviser to discuss this.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.