How does the early access superannuation scheme work?

With the government changing the rules and allowing Australians to have early access to their super, many are jumping at the chance to get their hands on an extra $10,000. For some this money will be going towards another long-term investment: their future home. First home buyers are jumping at the chance to be able to get together their deposits a little faster than they may have originally planned – after all, if you and your partner both took the full $20,000, that’s $40,000 on top of whatever money you’ve already saved for your deposit. And, of course, with some people forecasting house prices to drop across the country, perhaps now is the perfect time to buy.

How does the COVID-19 Superannuation early access scheme work?

People who have been financially affected by COVID-19 can access some of their superannuation early, in the form of a withdrawal. Individuals will not need to pay tax on amounts released and will not need to include it in their tax return.

The application is available through ATO online services in myGov.

Eligible Australian and New Zealand citizens and permanent residents are able to apply to access up to:

  • $10,000 of their super until 30 June 2020
  • a further $10,000 from 1 July 2020 until 24 September 2020.

Do I qualify?

Australian (and some New Zealand) citizens who satisfy the requirements below can qualify for early access to their super:

  • You are unemployed,
  • You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (including the single and partnered payments), special benefit or farm household allowance
  • On or after 1 January 2020, you either:
    • Were made redundant,
    • Had your working hours reduced by 20% or more,
    • (if a sole trader) had your business suspended or there was a reduction in your turn over of 20% or more.

You must satisfy one or more of the above requirements to qualify.

I’ve applied. What next?

First, be prepared to wait a little while. The latest data is showing that 1.5 million people have accessed their retirement savings. The Australian Taxation Office (ATO) has rolled out tougher checks to prevent fraud (which we are already seeing cases of). The large number of people accessing their super and the tougher checks are leading to longer waiting times before the money is released: in some cases, it may take up to two weeks before super fund members have the money in their account.

An ATO spokesperson urged applicants to be patient while waiting for their money to arrive in their bank accounts:

“Once they have received a notification from the ATO that their application has been approved, people should contact their fund or funds after five business days, not the ATO, if money is taking longer than expected to arrive in their accounts,” he said.

I’m not sure if I want to pull my retirement savings out? Is a home/investment property really a better investment than leaving it to gather interest?

Super is a long-term investment that typically rides the ups and downs of the market over your working life. You may need to withdraw some of your super now, but be aware that any money withdrawn and spent now is money you won’t have invested for your retirement savings. However, if you choose to buy a home – be it your first home for yourself or an investment property – then you will be making another type of investment into your future.

Consider impacts on your insurance

More than 70% of Australians that have life insurance hold it through their super account.

If your super balance falls to zero or is too low you may lose your life and income protection cover.

Calculate the impact on your retirement savings

Your super is your retirement savings. Money you take out today will be money you don’t have in retirement.

To understand more about your personal income in retirement, use the retirement planner.

You should consider carefully what impact withdrawing super today will have on your retirement savings. However if you are withdrawing your super to help put together a deposit for a property, then we here at PropertyMash think that is a wise move. Not only has property shown itself to be a fantastic investment, owning a home is also proven to improve your savings rate. There is nothing like a mortgage to focus your spending behaviour and encourage savings. And that surely can’t be a bad thing!

Written: 24 May 2020

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