Early Access to Your Super: Should You Do It?
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Early Access to Your Super: Should You Do It?

Reema Steitie

Reema Steitie

26/03/2021 • 7 minute read

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COVID-19 and early release of superannuation

The coronavirus pandemic has undoubtedly impacted a lot of us financially. It’s brought on a complete economic downturn that has affected many people’s ability to earn money and cover costs. As a result, many people are currently in desperate need of financial assistance. So when the Australian Federal Government announced individuals could have early access to their superannuation, there were likely a few sighs of relief.

So who’s allowed to access their super early and most importantly, is it a good idea?

Firstly, a disclaimer, I’m not a financial expert but I have done some digging and pulled together some of the key facts below. Also, while I personally decided not to access my super early, I know of some people that did. Ultimately, it all comes down to your situation. It’s important to remember not everyone who applies may be eligible for this early access. You can only access your super under specific circumstances. So, let’s dive into it!

In order to apply for early access to your super you must first either be an Australian permanent resident or citizen. You are also eligible if you:

  • Are unemployed
  • Are eligible to receive: JobSeeker payment, Youth Allowance, Parenting Payment, Farm Household Allowance (FHA), or Special Benefit
  • Have been made redundant from your position after 1 January 2020
  • Have received less working hours, by at least 20%.
  • Are a sole trader and your business has been suspended or is facing a reduction of a minimum of 20%.

If you fall under any of those categories, great news! You’re eligible. But that’s just the first step. There are a few more details you should know about if you decide to withdraw your super early. For example, you won’t have to pay tax on the funds you withdraw. It also shouldn’t affect any Centrelink benefits you currently receive.

What to consider

Before submitting your application, it’s super important to consider your options before withdrawing your super. After all, no benefit comes without a few risks here and there. Taking out your super early is a big decision and there’s a lot to consider.

Simply put, your super is a gradually growing fund that will help finance your retirement. So if you decide to withdraw funds from it early, this may have an effect on your retirement plan. Let’s look at some things you should consider to help you make an informed decision.

  1. Other financial assistance. A lot of us are struggling financially from COVID-19. You could be struggling to build your savings, pay bills, debts, etc. We feel you! While accessing your super early can certainly help, you should probably consider your other options first. For instance, have you checked if you’re eligible for government assistance like the JobKeeper Payment? This is a wage subsidy program which could grant you $1,500 a fortnight if you’re eligible.
  2. The impact on your retirement. It’s inevitable that withdrawing your super early will have an impact on your retirement. It really depends on your current balance and when you’re expecting to retire. Regardless of those factors, early withdrawal of your super will have a huge impact on your future finances. It may ease some financial worries now, but could result in larger issues in the future. Everyone wants to retire comfortably, and we’re sure you do too.
  3. Loss of insurance cover. There are several consequences to accessing your super early. One of these is that your insurance may be highly affected. For instance, if you withdraw your entire super fund and are left with a balance of zero, your account may close. As a result of this, your insurance may also get cancelled.

Types of early withdrawals

So, still want to access your super early after considering your other options? Well, keep in mind you won’t be granted early access to your super if you don’t have a valid reason. But with our help, you can get a better understanding of where your reasons may stand. Here are some reasons you may want to consider to access your super early:

Early access: Compassionate grounds

If you plan on withdrawing from your super early, you may be allowed to access it on ‘compassionate grounds’. Compassionate grounds include you or your dependent needing money to pay for:

  • Medical treatment and medical transport
  • Palliative care
  • Home loan payments or council rates
  • Funeral, burial, or death expenses

Early access: Financial hardship

Financial hardship isn’t usually administered by the ATO. You will have to directly contact your super company and request access due to financial hardship.

However, you’ll still need to meet these two conditions:

  • Receive government income support payments for at least 26 weeks, continuously.
  • You’re unable to meet everyday living expenses.

The super you withdraw will be taxed as a super lump sum. The tax rate depends on a range of factors, such as your age and the components of the super lump sum (e.g. taxable component – (un)taxed element). Think about what amount you believe will suit your needs. The minimum amount you can withdraw is $1,000 and the maximum is $10,000. It’s very important to determine how much you need, as you are only granted one withdrawal every year.

Early access: Terminal medical condition

Another reason to access your super early is if you have a terminal medical condition. A terminal medical condition exists if:

  • Two registered practitioners certify you suffer from an illness that may result in death within two years.
  • One of the practitioners is a specialist related to your illness.
  • The 24-month death certification is still active.

Keep in mind, your fund may not always allow you early access to your super based on a terminal medical condition. If this is the case, but you are still adamant on accessing your funds, you may want to consider switching to a different super provider.

Early access: Temporary Incapacity

If you are temporarily unable to work, or need to work less hours, because of a physical or mental medical condition, you may consider accessing your super early to utilise your insurance benefits in your super account. If this sounds like your condition, you can simply contact your provider and request access.

You won’t have to deal with any tax rates if you’re withdrawing funds based on temporary incapacity.

Early access: Permanent incapacity

You could also access your super if you’re permanently incapacitated. You may know this type of withdrawal as ‘disability super benefit’. This type of withdrawal is for individuals who are permanently suffering from a physical or mental medical condition. Essentially, this means your condition is preventing you from working.

Unlike the other withdrawal conditions, permanent incapacity has different tax components. So, if you want concessional tax treatment, you will need to get the condition certified by two medical practitioners. Concessional tax is everything your employer contributes to your super.

If you plan on withdrawing funds based on this condition, simply contact your provider.

How do you access your super early?

You have betweenJuly 1 and September 24 2020 to submit an application through the Australian Taxation Office (ATO) on the myGov website. You can access up to $10,000 which can certainly relieve a lot of financial pressure. The question remains, though. Should you do it?

The cost of withdrawing your super

In a recent article by the Barefoot Investor, Scott Pape gave some examples of how much withdrawing from you super early could cost you down the line. According to Scott, if you cash in $20,000 of your super money you’re selling out cheap.

“If you’re 45 years old, that $20,000 would be worth $50,000 by the time you retire,” he wrote. “If you’re 35 years old, it’s an $80,000 decision. And if you’re 25 years old, you’re really gambling with $132,000!”

His reasoning is that, historically, the stock market has always gone up. So, cashing out your super investments during the current share market crash will put you at a big disadvantage going into your retirement.

Key pros and cons

To summarise, here’s a quick overview of the pros and cons of accessing your super early:

Pros  Cons
Can offer some financial relief Less retirement savings
Tax free Affects your compound interest
You may cancel your insurance
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Key takeaways:

  • You have until 24 September 2020 to access your super early!

As you can see, the cons clearly outweigh the pros. While this is never a good sign, you know your personal finances better than we do. So, if you’re struggling to find other sources of income, then accessing your super early could be a good idea.

Looking to get to know your super better? Check out our guide on how it works.

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Reema Steitie

Written by Reema Steitie

Reema Steitie is a contributing writer for Oiyo, covering topics across the finance and insurance sectors. She is currenty studying a double degree in Business and Communications at the University of Queensland. Reema has worked as a Content Writer within the finance sector and is a passionate advocator for social causes. In her spare time, you can find her at the movies indulging in her love of film.

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