Should you withdraw from your superannuation during COVID-19?

But how much are you able to access? Who exactly can access it? And perhaps most importantly of all, is accessing your super early to cope with the coronavirus crisis actually a good idea?

On this page:

• How much super can you access?
• Who is eligible to access their super?
• What they said: The government and the opposition
• What they said: Industry spokespeople
• Is withdrawing your super a good idea?

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How much super can you access?

Per the government’s stimulus package announcement - the full details of which can be found here - it is allowing individuals affected by the coronavirus to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21.

So in short, you can access up to $20,000 of your super. That first $10,000 is available between mid-April and 1 July 2020, and the second $10,000 is available after 1 July 2020 for around three months.

Crucially, those withdrawing their super will not need to pay tax on amounts released, and the money withdrawn will not affect Centrelink payments.

“While superannuation helps people save for retirement, the Government recognises that for those significantly financially affected by the Coronavirus, accessing some of their superannuation today may outweigh the benefits of maintaining those savings until retirement,” the official Economic Response to the Coronavirus fact sheet says.

Treasurer Josh Frydenberg has said the provision would amount to less than 1% of the $3 trillion currently saved in super being withdrawn, although 1% still equates to a hefty $30 billion being taken out.

He also said the Australian Prudential Regulation Authority (APRA) has advised the government that there would be no significant impact to the superannuation industry.

Withdrawing these maximum super balances is completely optional - but it can pay to know if you’re eligible to do so if needed.

Who is eligible to access their super?

According to the fact sheet, to apply for early release you must satisfy at least one of the following criteria:

• You must be unemployed

• You must be eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment or other special payment

• After January 1 2020:

  • You were made redundant

  • Your working hours were reduced by 20% or more

  • As a sole trader, your business was suspended or there was a reduction in your
    turnover of 20 per cent or more

You’ll be able to apply for early super release from mid-April 2020, and can do so directly on the ATO’s website through myGov at http://www.my.gov.au/.

What they said: The government and the opposition

The Morrison Government naturally was supportive of this step, saying the measure is built on existing hardship provisions allowing early access to super, and is estimated to put up to $27 billion back into the pockets of hardworking Australians.

“Australians affected by coronavirus will be given early access to their super, capped at $10,000 this financial year and $10,000 next financial year tax-free,” Mr Frydenberg said.

“This is the people’s money and will benefit the sole trader or casual whose work hours or income has reduced by 20%+ since Jan 1.”

Australians affected by #coronavirus will be given early access to their super, capped at $10k this financial yr & $10k next financial yr & tax-free.

This is the people’s money & will benefit the sole trader or casual whose work hours or income has reduced by 20%+ since Jan 1. pic.twitter.com/7XSN9qZEIa

— Josh Frydenberg (@JoshFrydenberg) March 23, 2020

“The next few months are going to be a difficult journey but we all have a role to play to adapt to the changes we are facing, to cushion the impact of what is happening and to pull together so we can bounce back when we get to the other side,” the Treasurer said.

The response from the Labor Opposition was mixed: Shadow Treasurer Jim Chalmers said the party was supportive of the Government’s second stimulus-response and will continue to work with the government to pass legislation through parliament, but added they are concerned with some of the decisions.

“Labor is concerned that the Morrison Government’s latest response has not substantially addressed some gaps we identified in the original stimulus, and raises additional concerns which we will work through with the Government,” Mr Chalmers said.

“The expansion of early release superannuation risks undermining retirement incomes and compromising financial system stability, and should only be a last resort.”

Prior to the stimulus announcement, Mr Chalmers told ABC’s Insiders there are other ways to support people doing it tough.

“We also think that there are real issues with encouraging people to divest from super when the market's in the condition that it is now. It's not good for them, it's not good for the system more broadly and we don't want to create problems for people's retirement down the track.”

Shadow Treasurer Jim Chalmers says ALP won't stand in way of govt measures announced today, but says "insufficient urgency" attached to payments. Welcomes support to business but questions concern for workers. pic.twitter.com/Z5poNkVgqj

— Malcolm Farnsworth (@mfarnsworth) March 22, 2020

As we’ll get to later however, there are definitely circumstances when accessing superannuation would be beneficial during the coronavirus pandemic.

What they said: Industry spokespeople

Apparently, the Treasurer did not consult major industry chief’s before the announcement, meaning it came as a surprise to many.

Nonetheless, key industry stakeholders expressed support for the new measures, while also urging caution and stating that the process must be handled carefully

Industry Super Australia Chief Executive Officer Bernie Dean

“Industry Super Australia (ISA) acknowledges the announcement made by the government today and is ready to work through the all-important detail that will enable people suffering hardship access to some of their super in an efficient way that doesn’t undermine our national savings system.”

“As we have been indicating publicly, this is an issue that must be handled very carefully in order to prevent the compounding of liquidity pressures that may be faced by superannuation funds in the current market conditions, and as they support anxious members.”

“Although industry superannuation funds were not consulted in the formulation of this proposal, we stand ready to engage with government and the ATO to make it work. Assisting those in financial hardship will come down to how well the ATO works with the funds, given each superannuation fund will have to manually issue the money.”

AustralianSuper Chief Executive Ian Silk (Australia’s largest super fund by assets)

“AustralianSuper believes that the superannuation sector has a role to play in these unique circumstances and is taking all steps possible and will support the Federal Government’s plan to provide members in financial hardship with early access to their superannuation.”

“AustralianSuper has begun working on developing all the necessary steps to implement the Federal Government’s announced measures.”

“The efficient running of the overall superannuation sector - in the interest of superannuation fund members - will need to be closely considered as the plan is rolled out and timing and processes confirmed.”

The Association of Superannuation Funds of Australia (ASFA)

“Today’s announcement by the Federal Government represents significant changes to superannuation early release provisions.”

“Early access to retirement savings should only occur under extenuating circumstances and we need to ensure it gets to those who need it most, in an efficient manner. ASFA will work constructively with government and regulators to endeavour to minimise the impact on the long term retirement savings of Australians.”

“The measures announced are very broad in terms of eligibility and we will work with our members to help understand the challenges that will present.”

The Financial Services Council (FSC) CEO Sally Loane

"We understand that the Government's temporary measures for early access to $10,000 tax-free this financial year and another $10,000 the following financial year will apply only to those in severe economic hardship, such as people who have lost their jobs as a result of the coronavirus crisis.”

"Accessing superannuation should not be the default response to providing income support for Australians in need over the short term, so we are pleased to see that this is a temporary measure as part of a broader income support package.”

“We urge the Government to continue working with the superannuation sector as we focus on safeguarding the retirement savings of Australians through this period of uncertainty, and look toward the industry’s role in investing to support the economic recovery effort.”

Is withdrawing your super a good idea?

The biggest reason for not drawing from your superannuation is it is meant for your retirement. Under normal circumstances, you normally can’t withdraw from your super until you’re at least 60 (known as the preservation age for the release of superannuation). Other circumstances for being able to withdraw super are:

• You have a terminal illness

• You have less than $200 in your super fund

• You’re a temporary resident permanently leaving Australia

• You are in severe financial hardship

• You meet ‘compassionate grounds’

• You’re temporarily or permanently incapacitated

According to the ASFA retirement standard index, a couple would need around $70,000 for a modest retirement and around $640,000 in super for a comfortable retirement, assuming the retirees are between 65-85, have earned 6% p.a. on their super fund and own their home outright.

Superannuation is meant to be a vehicle towards earning a comfortable retirement, so it shouldn’t be drawn down on lightly. But these aren’t normal circumstances, and if you’ve been financially affected by the coronavirus then you could definitely consider yourself to be in financial hardship.

Labor Leader Anthony Albanese has warned of the consequences of withdrawing from your retirement fund at the bottom of the market.

“Selling your super at the bottom of the market will risk squandering people’s hard-earned retirement savings,” the opposition leader, Anthony Albanese, told parliament on Monday.

“It is also the case if the superannuation industry is forced to sell assets at the bottom of the market. That also is not sensible economics.”

Super Consumer Australia director Xavier O’Halloran meanwhile told The Guardian that this scheme should only be used in extreme circumstances, like avoiding homelessness or feeding your family.

“I’d really weigh the options and look at it as a last resort,” he said.

“If you’re going to be kicked out of the house because you can’t pay rent or you can’t buy food for your family, these things can lead to things that are far worse than losing a few years of income in retirement.”

Find a middle ground

Spaceship Super CEO Andrew Moore said this new policy helps provide a financial crutch to those in need. 

However, he also warned of the dangers of withdrawing too much too early. 

"Withdrawing only what you need is a way to avoid eroding your retirement nest-egg too much," he told Savings.com.au. 

"Most of Spaceship’s superannuation members are millennials, which means they typically have many years to ride out the ups and downs of investment markets before they reach retirement age.

"When on better footing, members might want to consider whether to make voluntary contributions to top up their super balance."

Aussies in favour of withdrawing super 

A snap study conducted by Roy Morgan research found a majority (79%) of Australians are in favour of people in financial difficulty being able to access their super. 

Both women (83%) and men (75%) approve, while those aged 35-49 are most in favour ay 82%. 

Roy Morgan CEO Michele Levine says Australians have given this policy a resounding tick of approval. 

“The devastating economic impacts of shutting down non-essential industries has already caused many Australians to find themselves out of a job and over the next few weeks hundreds of thousands of more will find themselves without a steady income," Ms Levine said. 

“The support Australians have signaled for allowing people in financial difficulty to access up to $20,000 of their superannuation over the next few months is a clear indication that the average Australian understands the gravity of the economic shock which is only now just starting to hit the economy.”

Westpac has made a revised forecast for a 'deep' recession in 2020, tipping the unemployment rate to rise to 7% (possibly higher), while Roy Morgan research found over 60% of Australian businesses have already been affected by COVID-19.

A lot of people are going to lose their jobs or businesses during this tough time, and if you absolutely need to then by all means, dip into your super to get by.

But if you just want some cash to buy a new TV or even to pay off some minor debts, your super is probably best left untouched.

"Superannuation tends to grow over the long term, and by taking out more than necessary now, people might miss an opportunity for future growth, leaving them with a lower retirement balance," Mr Moore said.