As of Monday 20 April 2020, people facing financial stress as a result of the COVID-19 pandemic have been able to access their superannuation account balance early.
Many of our patients and clients will choose to take this option, however it is important for us to highlight that accessing super early should only be done as a last resort, as the consequences of doing so for retirement account balances - as well as on their default insurance - can be significant.
Analysis by Industry Super Australia points out that withdrawing $20,000 over the next year could cost a 30-year-old $100,000 at retirement, and a 40-year-old $63,000. As we know, almost half of those who have so far applied to withdraw their super account balance are under the age of 30.
Who is eligible?
Eligible individuals can apply through the MyGov website to access up to $10,000 from their superannuation balance before 1 July 2020, and up to a further $10,000 from 1 July 2020.
Your patients or clients may be eligible if they are unemployed, or eligible to receive one of the following government allowances:
- Job seeker payment
- Youth allowance for jobseekers
- Parenting payment (including single and partnered payments)
- Special benefits, or
- Farm household allowance
People can also apply for early release under the new provisions if they can show that on or after 1 January 2020, they were either made redundant or had their working hours reduced by at least 20%. If they are a sole trader, they will need to show that their business was suspended or there was a reduction in turnover of 20% or more.
What about insurance?
In addition to the significant impact withdrawal could have on a person’s account balance at retirement, there is also a risk that they could lose the valuable life and disability insurance usually provided by default through their super fund.
Default insurance is a critical lifeline for many people, particularly at times like this where they may be unable to work due to injury or illness. It is often the only insurance that most people have.
In 2019, law changes meant that super funds were directed to cancel insurance attached to funds that had an account balance of less than $6,000 or if no contributions were received for 16 months.
Why is this relevant? Simply put: if a client withdraws their superannuation account balance, and there's not enough money left over to pay premiums, then their insurance may stop.
What are the other risks?
From forced withdrawals to scams, we talk about some other potential risks on our blog.
What can I do?
If your patient or client is considering withdrawing funds from their super account, encourage them to seek advice about the impacts to ensure they are making an informed decision. If they don’t have a financial adviser to contact, Maurice Blackburn can refer them to a reputable licensed one.
They should find out what insurance cover they have, and how much money they need to consider leaving in their account to pay the ongoing premiums. If they have a medical condition that may cause them to cease work in the future it is very important that they don’t lose their insurance entitlements.
If they’re facing a period of unemployment which may last for 16 months or more, or if they aren’t sure how much money they will need to leave in their account to meet the cost of ongoing premiums, they should contact their superannuation fund as soon as possible. They may be able to retain their insurance cover by finding out how much money should remain in their account, and by giving their permission for premiums to continue to be deducted.
Importantly, if your patient or client is sick or injured and can’t work, they may be able to claim on their default insurance through super now. By referring them to Maurice Blackburn for a free super check they will learn about their entitlements and be empowered to make an informed decision.
You or your client can contact us on 1800 196 050 or via Spreclaims@mauriceblackburn.com.au
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