What you need to consider before withdrawing your super early

As of Monday 20 April 2020, people facing financial stress as a result of the COVID-19 pandemic are able to access their superannuation account balance early. 

Accessing your super early should only be done as a last resort, as the consequences of doing so for your retirement account balance - as well as on your insurance and other factors - can be significant.

This is also why strict eligibility criteria apply in making such applications, with potential penalties for anyone who may be seeking to make such an application inappropriately.

If you are eligible, you will be able to apply through the MyGov website to access up to $10,000 out of your superannuation balance before 1 July 2020, and up to a further $10,000 from 1 July 2020.

If you're thinking about withdrawing your super early, talk to us about your options first. Maurice Blackburn provide a no obligation, free super check over the phone. Call us on 1800 196 050.

We discuss who is eligible and our top four things to carefully consider before you withdraw your super balance early. 

Who is eligible for early access?

You can apply to access your super early under the pandemic provisions if you 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

You can also apply for early release under the new provisions if you can show that on or after 1 January 2020, you were either made redundant or had your working hours reduced by at least 20%. If you’re a sole trader, you need to show that your business was suspended or there was a reduction in your turnover of 20% or more.

These are strict criteria, with potentially severe penalties for those seeking early access to their super who are ineligible.

Things to check with your fund if you are thinking about early release of super

Accessing your super early should only be done as a last resort, because the consequences later in life on your retirement balance, as well as in the short term for your insurance as well as other potential risks are significant.

If you are eligible for early access to super and are looking to make an application, here are some things you may want to check with your fund:

Potential fraud

With the decision to access super early now in effect, there will be pressure on many super funds to quickly action requests for this.

The risks of fraud on early release of super however potentially loom large, with applications made through MyGov and if approved, then passed on to the super funds, who will pay out to a nominated bank account.

The ATO has warned of the risk of scams on early release of super, and recently the Australian Government was forced to pause the scheme after a number of fraudulent withdrawals were made.

The scheme is now open again, however given these applications are being processed across different groups and agencies there are also concerns that requests for early access may be a weakness scammers seek to exploit.

Identification checks also can be hard to check quickly in the current environment, a new issue that has arisen given the scale of requests coming in.

Crucially, it is also not clear who will pay out in the event of a fraudulent withdrawal so a member is not left out of pocket. Further safeguards are needed from Government to ensure that funds are covered for this risk and so members can be reimbursed if needed.

People being pressured to access super to pay for rent and other essential services

Sadly, there have been reports of real estate agents pressuring tenants in financial hardship to make an early draw down on their super to cover this before they'll be shown any leniency.

ASIC have issued a warning that such conduct could lead to jail time and fines as a likely breach of the Corporations Act.

It’s also worth remembering that in the event of bankruptcy, super is one of the few savings quarantined from creditors, given the crucial role of super in retirement.

So if you are in extreme financial distress, we suggest ensuring you have explored all options before drawing on super, particularly if there is a risk of bankruptcy.

People being pressured by family members and close contacts to access their super

There is undeniably a risk that vulnerable people are at risk of being pressured to withdraw their super in the current environment, including women who may be in abusive relationships and people who are incapacitated and unable to make informed decisions about this. There have also been reports of people going through divorces accessing their super to reduce their ex-partners’ entitlements.

Further safeguards are needed to protect people in these circumstances.

Insurance

Many people are not aware that they have death and total and permanent disability insurance in their super and some have income protection insurance cover too.

This is a critical lifeline for many, as it's often the only insurance many people have - particularly at times like this where people are unable to work due to injury or illness may need their insurance more than ever. History shows that disability insurance is most utilised during and in the aftermath of an economic crisis, so the loss of this cover when you need it most could be significant.

In 2019 laws were passed that directed super funds to cancel insurance attached to member accounts if they don't receive any contributions for 16 months or have a balance of less than $6000.

The Federal Government have said that if you had an active account with more than $6000 any time before 1 November 2019 your insurance won't be switched off.

That means if your balance drops below $6000 due to accessing super under the new provisions your insurance won't automatically be cancelled, which is good.

But if there's not enough money in your account to pay premiums when you withdraw your insurance will stop.

What else do I need to consider?

While accessing a quick lump sum right now might seem appealing, it’s important to remember that your superannuation is your retirement savings. Particularly for younger workers, a small withdrawal now may have a very significant impact on eventual retirement savings.

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.

The decision to make early withdrawal of super funds should not be taken lightly and should be done as a last resort, with proper financial advice to help manage the immediately and longer term financial impacts.

What can I do?

If you’re considering withdrawing funds from you super account, seek financial advice about the impacts. If you don’t have a financial adviser we can refer you to a reputable licensed one.

Find out what insurance cover you have, and if you want to retain your insurance find out how much money you need to consider leaving in your account to pay the ongoing premiums. If you have a medical condition that may cause you to cease work in the future it is very important that you don’t lose your insurance entitlements.

If you’re facing a period of unemployment which may last for 16 months or more, or if you aren’t sure how much money you need to leave in your account to meet the cost of ongoing insurance premiums, we suggest you contact your superannuation fund as soon as possible.

You may be able to retain your insurance cover by finding out how much money should remain in your account, and by giving your permission for premiums to continue to be deducted.

Equally if you are concerned about fraud or the impacts of being pressured to access your super early you should contact your super fund.

If you’re sick or injured and can’t work, you may be able to claim on your insurance now. Maurice Blackburn provide a no obligation, free super check over the phone. Call us on 1800 196 050.

It cost you nothing to know where you stand.

Should you withdraw your super early?

RELATED LEGAL SERVICES: Superannuation claims

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Josh Mennen

Maurice Blackburn Brisbane
Josh Mennen is a Principal Lawyer in the Superannuation and Insurance practice in Maurice Blackburn's Brisbane office. He regularly visits Melbourne, Sydney and Adelaide. He has practiced predominantly across superannuation, insurance, financial advice and consumer credit disputes. Admitted to practice in 2007, ...

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