Page last updated on 01/06/2020
What do the changes mean?
- It is very likely there will be high demand for early access to super using this new and temporary ground for release.
- There will be people who will ask for assistance from financial counsellors to get early release
- There is no requirement to attach evidence to support the application but people need to retain documents and records to confirm eligibility.
- If your client makes an early release application for less than $10,000 they cannot make a second application for the rest of the $10,000 in the same financial year. Your clients only get two applications – one each financial year up to $10,000.
- There will be people who will seek early access to their super when it is not in their best interests to do so
- If the super balance falls below $6000 following an early release some people may lose the insurance cover in their super
- There will be people who access their super when they are not eligible to do so. The ATO has announced fines to cover such circumstances. It is expected that there may be some auditing after tax time. If your client was not eligible to access their super but stil did, it may be necessary to negotiate on the fine given the circumstances of your client.
What do you do differently?
Financial counsellors have been assisting people with early access to super for many years. The same principles still apply in the pandemic.
The principles are:
- Super is for retirement. It works on compounding interest over many years to deliver a large sum in retirement.
- Early access to super means a reduction in the sum held, which significantly reduces the amount available in retirement (for example $20,000 accessed at 35 years old could mean that the total balance in retirement may be reduced by up to $80,000).
- Super should not be used for living expenses. A longer term solution is required that addresses the core problems.
- Super should not be used to repay debts. Affordable repayment arrangements should be negotiated, if necessary through accessing industry hardship processes.
- Using early release of super to deal with a spending problem only offers a temporary reprieve and the spending problem continues.
Choice – Should you access your super early? Here’s what to consider? See table and information
When does it makes sense to access super early?
In limited circumstances, early release is necessary and makes sense. They are:
- To fund a life-saving change. This could be, for example, escaping violence or accessing medical help (if not covered by Medicare).
- If the person is unlikely to be alive at retirement. This is similar reasoning to the access that may be granted for terminal illness.
- If the money would make a real and long-lasting change to the financial stability of the person. For example, to buy a caravan for shelter.
Managing your client’s expectations
Some clients will want access to their super and will not listen to any other options. People do not have to listen or act on your advice. You also do not have to represent the client if they do not follow your advice.
Some tips are:
- It is always useful to consider a person’s whole financial situation and give advice on potential problems. Even if the client still wants to access their super, working with the client to resolve the problems that caused the need for the super may prevent future problems.
- Some clients will decide against accessing their super if you provide other workable options.
- Talk to the client about the need to find permanent and lasting solutions to temporary problems (like a debt).
- The pandemic may be an opportunity (for some people) to improve their financial stability as they may receive temporary extra income (coronavirus supplement) through Jobseeker and a stimulus payment.
- There is no need to access the entire $10,000. Talk to the client about what the amount they actually need to make a lasting change.
- There is at least a partial stay on enforcement action by creditors and this provides an opportunity to safely negotiate repayment arrangements where pressure is reduced.
- If clients do take out the super, it should be replaced by paying extra when they can.
- Most importantly, if your client is determined to access their super, it is essential that it be spent in the best way possible. Financial counsellors have a vital role in giving advice on the best priorities to ensure the spending has a long-term benefit.
Reasons not to access super early
A list of reasons that may be useful when talking to your client:
- The super is being withdrawn just when the market has dropped significantly. Markets go up and down (and so does super). They may miss the chance of seeing the markets go up again.
- Compounding means that money withdrawn now may mean significantly less in retirement. There is information available including graphs and tables, see resources below.
- If the balance of the super account falls below $6,000 after withdrawal, the person may lose the insurance included with the super.
- If a person suddenly has a pile of money in their account, there is a risk they will be pressured about how the money is used. Not only creditors will be asking for money. Family and friends may now be in financial hardship.
- Early access to superannuation can leave people exposed to being scammed. The scam could be to pay to access it (when it is free) or scamming people out of the money when the person gets it.
- It also protects the person from spending the money on impulse. We are all anxious because of the pandemic. Many of us have weaknesses around money, and having a large amount of money accessible can lead to large unnecessary spending.
- It is pointless to get super out just to repay a debt or buy food because this is only a Band-aid solution. For example, using super to repay a credit card that is just used again will created further problems.
- With support from a financial counsellor many people can resolve long-term financial difficulty without needing to access their super. Financial counsellors can help people make repayment arrangements, look at their spending patterns and find savings and help people build a savings buffer.
Superannuation fund will not release early
As we know already, there are some super funds who do not release super early as they have discretion to refuse early release in their trust deed.
The client’s options, if early access is refused:
- Rollover their super to a fund that will do early access. (Warning the super fund may also refuse the transfer and there may be delays.)
- Complain to the ATO if early access is refused. This may not assist.
- Complain to AFCA. Although AFCA may not have any power at all to override a clause in a trust deed. However, alternative arguments may be available.
- Do not proceed with early access and consider other options.
Temporary residents may be able to access super early if they are now unemployed. To be eligible the person must be in one of the following circumstances:
- Have held a student visa for more than 12 months and be unable to meet immediate living expenses.
- Be a temporary skilled work visa holder whose working hours have reduced to zero but remain engaged with their employer.
- Hold a temporary resident visa (excluding student or skilled worker visas) and be unable to meet immediate living expenses