The government scheme, announced as part of the stimulus package, allows eligible participants to access up to $20,000 from their superannuation account tax-free — $10,000 on or before 30 June 2020 and another $10,000 from 1 July 2020 until 24 September 2020.
But BDO superannuation partner Mark Wilkinson has warned Aussies against rushing this decision. He explained that the implications in 30 or 40 years could be life-changing.
“While accessing your super right now might provide some relief if you’re facing significant financial pain, there should be a big, red ‘Proceed with Caution’ sign warning that your future self will pay the price for this move,” Mr Wilkinson said.
“There have been similar arguments in recent years for accessing super as a way of helping first home buyers get into the market. But the numbers just don’t add up.”
Mr Wilkinson explained that although $10,000 doesn’t sound like a lot for an individual who is 25 and has lost their job due to COVID-19, “that $10,000 today could be worth $160,000 when they retire in 40 years”.
“Some people may find the ability to access their retirement savings early necessary, but they should weigh up the long-term effects on their retirement savings by doing this.”
He cautioned individuals who do qualify to be mindful of the consequences.
“If you qualify and you do decide to withdraw funds from your super, you need to be mindful that it’s not so easy to replace your retirement savings and you’ll be playing catch-up for a few years to come,” he continued.
“While the early access incentive may appear enticing, people should act with caution before implementing this measure and be aware of the longer-term implications.”
The government has allowed access to a release of $10,000 from superannuation as follows:
According to Mr Wilkinson’s example, the following potential consequences face a 25-year-old and a 35-year-old accessing $10,000 of superannuation now:
- For a 25-year-old, $10,000 withdrawn from superannuation now could’ve equated to $160,000 at age 65.
- For a 35-year-old, $10,000 withdrawn from superannuation now could’ve equated to $80,000 at age 65.