How Has Covid-19 Affected Your Superannuation – And How Do You Get Back On Track?
The coronavirus pandemic and subsequent lockdown has shaken up superannuation in several significant ways.
First, it sent the earnings of companies into a tailspin and caused havoc in the market for fund managers, with assets under management falling nearly 8% in the March quarter.
Second, it shocked superannuation funds with a lot of member exposure to affected industries such as retail, hospitality, travel and tourism. The staff layoffs in those sectors obviously affected fund bottom lines.
Most importantly, it caused significant losses to many people’s nest eggs. Just like when the GFC happened, if you were unlucky enough to be readying for retirement, a big loss could mean a major effect on your lifestyle and livelihood in the following years.
The government responded by offering people the opportunity to access up to $20,000 of their super in advance- $10,000 in the 2019/20 financial year and another $10,000 in 2020/21- to help with financial difficulties. So far, more than 2 million Australians have applied for the early release of funds and more than $15 billion has been paid out.
Am I eligible?
We are into the new financial year so anyone applying now will be limited to accessing $10,000.
In order to be eligible, you must be a citizen or permanent resident who fits ONE of the following criteria:
-Qualified for jobseeker payments or other youth, parenting or special benefits
-Made redundant in 2020, or had working hours reduced by 20 per cent or more.
-A sole trader with a business that lost 20 per cent or more in turnover or was suspended.
How do I apply?
Apply through the ATO online by setting up a myGov account and linking it to the ATO. You need to have your superannuation balance ready and apply before September 24, 2020. You will then get a letter of approval or rejection in your myGov inbox within the following week. If approved, your super fund will make the payment within 5 business days.
Should I apply?
Here’s where it gets tricky. First, this is not financial advice! The most important thing to do when setting out a financial roadmap is to engage a qualified adviser. A professional can let you know where the hurdles are that could trip you up along the way.
For example, you may want to access the money to purchase property because you don’t trust the performance of assets in a super fund as much as a physical asset that generates cashflow like an investment property. Sounds good so far, but the bank may refuse to lend to you when they see you dipped into your super. Messing with super could be bad news for investors looking to expand their portfolio down the track.
Market fluctuations are nothing new and occasional uncertainty is part of being invested. All things will pass and markets will rebound.
If you take $10,000 out, you could miss a future windfall.
If you stay invested, you will be there riding the next resurgence – and the next after that if you have a long time until retirement.
Like all things, the longer you are invested, the greater number of growth cycles you will enjoy.
What are my alternatives?
If you think superannuation could take a further hit later this year and you need the money short term, accessing it may be an option.
However, there is also the potential to negotiate with banks for a mortgage repayment break or a flexible repayment plan.
Remember, the initiative was really put in place to help people weather the storm if short of liquid assets while waiting for benefit payments to filter through.
Last resorts don’t often present great opportunities.
You will only find out whether this is an opportunity for you or something to be avoided by sitting down with a financial planner to get tailored advice for your unique situation.