COVID-19 Impact: Around 0.9 Million Go For Early Superannuation Withdrawal

Coronavirus outbreak has forced the global economy to slump at a rate never seen in decades, while IMF has hinted towards the deepest recession. The world has come to a standstill as governments increase restrictions on people movements and exercise isolation to stop the spread of contagious pandemic. Factories and businesses have been shut, restaurants, cafes and clubs are closed amidst lockdowns worldwide throwing several workers out of their jobs.

ALSO READ: COVID-19 Pandemic: An Economic Emergency to be Dealt With

The geared up Australian government has undertaken $320 billion worth of stimulus measures providing support to households and SMEs, extending relief to 6 million workers through JobKeeper Payment program, along with permitting temporary premature release of superannuation.

The Federal government has allowed the people in financial stress to access up to $10,000 of their pension savings tax-free for the current financial year and $10,000 the following year.

ALSO READ: Is Australia heading for double-digit unemployment?

With the rollout of government scheme, close to one million Australians have applied for early access to their superannuation. The Morrison government is allowing laid-off workers with financial crunch to access early super from 20 April 2020.

The first $10,000 of the superannuation can be availed by 30 June. The second $10,000 can be availed between 1 July 2020 and 24 September 2020

Early Withdrawal Eligibility

To be eligible for an early Super, a citizen or permanent resident of Australia needs to satisfy the below criteria:

• unemployed
• eligible to receive Youth Allowance, JobSeeker Payment, Parenting Payment, Special Benefit or Farm Household Allowance.
• people who on or after 1 January 2020 were made redundant, had their work hours decreased by 20% or more and sole traders whose businesses have been suspended or seen turnover decrease by at least 20%

As per Productivity Commission report, Australians pay about $30 billion a year in fees on their super. Over 15 million Australians own more than $2.7 trillion in assets, and about 9.5% of the wages are set apart for retirement through government obligation.

The Federal Government has evaluated ~ $27 billion tax-free super payments to be repaid to nationals under financial distress.

Ian Silk, AustralianSuper CEO warned that the government estimates of a number of people accessing Super funds might be underestimated.

Rice Warner, an actuarial firm has forecasted that $40-$50 billion will be withdrawn from the Super as the unemployment increase.

Super Liquidity Concerns

Several Super funds have raised issues regarding the liquidity and probable cash shortages after the government measure of early access to superannuation.

The Tax Office of Australia has given Super a 6-month stay for the transfer of unclaimed super balances to makes sure funds have cash for its members.

Funds that serve to hospitality, retail and tourism sectors would be most affected by the early withdrawals. Subsequently, Hostplus and REST are anticipated to face more withdrawals as its employees work in the sluggish industries. If they are not able to fulfil the cash demands, they will have to sell assets at bargain prices.

ALSO READ: Retail Sector Up for An Arduous Time Ahead Despite A Surge in Online Volume

John Frydenberg, Treasurer stated that the government has always asserted superannuation funds to have sufficient reserves and maintain appropriate liquidity to avoid crunch during a crisis. He further mentioned that The Australian Prudential Regulation Authority (APRA) has the ability of using mergers which can be used if a fund is unable to fulfil member needs.

The superannuation funds like UniSuper, REST and HostPlus have assured its members that they are prepared for an early release claims and are well-positioned to handle the current situation.

There are established clauses in superannuation product disclosure statements which keep on getting updated that give funds the option to allow early withdrawals. Hostplus has recently updated the disclosure statement that gives it discretion to delay or suspend unit pricing during unexpected times to ensure fairness, equity and balance in investment pricing.

REST has established that clause stating trustees have discretion on the pay out.

ALSO READ: Keeping Faith in the Economy when Worst is Ahead

Accessing Super Early

Bernie Deans, ISA chief asserted that members must proceed with caution and open Super only after they have taken the cash support from the government.

An analysis by Industry Super Australia (ISA) has shown that a 20-year-old individual of Australia who claims the full $20k amount under the government scheme could lose more than $120k from their retirement portfolio.

Besides, a 30-year-old who demands to access $20k from Super now could suffer the loss of more than 100k at the time of retirement, while a 40-year-old could lose 63k. The analysis shows young people to get hit more as they have just begun.

The real exam for the funds is handling of flood of enquiries that have come up and more to come amid coronavirus pandemic. Accessing Super early during the present time may make you lose money that you might have gained over time. No doubt, the amount in your Super grows when money is put into it, and the funds pay you a return on their investments. However, current market volatility has put us in a financial crunch for us to resort to early withdrawal of our future safety net.

Disclaimer