Why You Should Think Twice Before Dipping Into Your Superannuation During The Pandemic
Dipping into your super early can cost you tens of thousands of dollars down the track.
Right now, the thought of dipping into a pile of money that’s just sitting there might sound pretty appealing to thousands of Australians who have suddenly found themselves without a job.
Technically, now you can — the government will allow people affected by the COVID-19 outbreak to apply for early release of their superannuation.
But before you go all Scrooge McDuck on your retirement fund, perhaps pause for thought.
Kyle Frost, financial adviser and director of Millennial Independent Advice, told Junkee by withdrawing from your superannuation you’re effectively stealing tens of thousands from your future self.
Despite this, some people have been advised to take out their superannuation early so they can pay their rent, despite the current moratorium on rental evictions.
The idea that people need to give their superannuation to landlords is fucking evil
— Darwinb0y (@darwinb0y) March 31, 2020
Under a new government plan eligible people (like those who have lost their jobs or had their work hours cut by 20%) can access up to $10,000 of their superannuation this financial year, and another $10,000 next financial year.
You can apply for early release of their super from mid-April by going to the myGov website.
However, if you were to take out the full $20,000 now you could potentially cost yourself $100,000 in compound interest over the next few decades, based on the median industry return of 8.1%.
Basically, you shouldn’t be considering it as an option unless you feel desperate and can’t meet your living expenses with any of the other welfare payments the government’s recently announced.
Accessing Superannuation Should Be A Last Resort
“It’s obviously there for a reason, it’s there for your retirement,” Kyle said.
“At the moment people are trying to survive so I think it’s a matter of understanding this is an option.
“I’d be encouraging customers to think of it like a loan from your future self … you can plan to salary sacrifice and pay that loan back, it’s not an official strategy but it’s a good mindset.”
Paying that “loan” back will guarantee you’re still getting some compound interest — not as much as you would have, but some.
But Kyle says the problem is you’d be withdrawing your money when the stock market is low, and investing again after it’s rebounded.
“Obviously the share market is down significantly right now … and the rule of investing is when the market is down hold your nerve. If people were to withdraw now they’d just be crystallising those losses,” he said.
“You’ve lost an investment opportunity right there.”
Agencies Threatened For Telling Tenants To Pay Rent With Super
This week a Melbourne real estate agency was slammed for telling tenants who have lost their jobs to use their superannuation to cover their rent.
Junkee spoke to renter Joshua Badge, who received an email which said they should be “taking advantage” of the scheme after they requested rental relief.
Superannuation should not be drawn down for rent. Once exhausted – then what?
Just another clamour for wealth transfer.
— Paul John Keating (@Paul_KeatingPM) April 2, 2020
The Australian Securities and Investment Commission has now gotten involved, saying they were concerned by the reports.
ASIC has written a letter to the real estate institutes in each state outlining concerns about some real estate agents who are advising tenants to apply for early release of their superannuation. https://t.co/1ceOwTpdEv
— ASIC Media (@asicmedia) April 2, 2020
Real estate agents to struggling tenants: "uSe YoUr SuPeRaNnUaTiOn tO pAy ReNt"
— Liam O 🦆 (@liamosaur) April 2, 2020
ASIC Executive Director Tim Mullaly has written a letter to real estate institutes in each state pointing out that this conduct could be considered “unlicensed financial advice”, which is against the law.
This carries a fine of up to $126,000 and five years jail for individuals, or $1.26 million for corporations.
“Tenants facing financial difficulty need sound financial guidance and potentially debt counselling,” he wrote.
“Specifically pointing them to and recommending them to consider the specific possibility of accessing superannuation is, again, likely to amount to a breach of the Act.”
ASIC confirmed they are monitoring the situation closely and will act swiftly to protect vulnerable consumers.