Over the weekend, the government announced it is allowing individuals, including sole traders, affected by the coronavirus to access up to $10,000 of their superannuation in 2019–20 and a further $10,000 in 2020–21.
However, the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA) are warning Australians experiencing financial hardships that accessing super early should be a last resort.
Although expressing their willingness to work with the government on administering support to individuals suffering the impacts of COVID-19, both AIST and ISA urged Aussies to consider the consequences.
AIST CEO Eva Scheerlinck said this could have “potentially far-reaching implications both on individual Australians and the broader national economy”.
Similarly, while conceding that the short-term financial survival of many may rely on their ability to access the up to $20,000 from super, ISA chief executive Bernie Dean said that members should first exhaust wage stimulus measures, including the increasing welfare support payments offered by the government.
“Members should tread carefully and only think about cracking open their super after they’ve taken up the extra cash support on offer from the government — super should be the last resort, given the impact it can have on your retirement nest egg,” Mr Dean said.
“Members need to know that taking your super now is like selling a house at the bottom of the market — you’ll lose money you would probably claw back overtime.”
Decision should be met with caution
Also joining the cautionary messaging, Slater and Gordon senior associate (superannuation/TPD) James Hunter said the new measures could see individuals drop to below the $6,000 mark in their super accounts, triggering an automatic cancellation of their default insurance.
From 1 April, default insurance is due to be cancelled automatically for those under the age of 25 or those who have less than $6,000 in their fund (as at 1 November 2019), or if their account has been inactive for 16 months or more, as part of the government’s Putting Members’ Interests First and Protecting Your Super reforms.
Mr Hunter warned that while accessing $10,000 may seem like a good idea, especially for sole traders who are suffering from reduced turnover, “you need to be aware of the downsides”.
“Importantly, in relation to your insurance, if you have either reduced or no contributions entering your fund, the ongoing administration fees, other fees and insurance premiums, together with the $10,000 lump sum, could reduce your account balance to less than the $6,000 mandated limit.
“If this occurs, your Total, Permanent and Disability (TPD), life insurance and income protection may be cancelled. You will need to contact your superannuation fund to opt in to continue being covered. If you do not contact them to continue receiving this insurance, you may find yourself uninsured should the worst happen and you suffer a life-changing injury or illness.”
He urged the federal government to consider pausing the automatic removal of superannuation insurance from potentially vulnerable people next month, adding that the reforms should be delayed.
“Many people will slip through the cracks in this climate,” Mr Hunter warned, while urging Aussies to think carefully before cracking their super.