The initiative introduced by the government in 2020 which allowed Australians who lost income due to covid-19 to access money from their super has now ended. Last year, if you'd lost work or been made redundant due to coronavirus you may have been eligible to access up to $20,000 from your super tax free. The cut off date to access from your super under this scheme was 30 December 2020.
Outside of this scheme, there are a few reasons why you may be able to access your super early, including if you're in severe financial hardship.
How did the Covid early access to super scheme work?
The scheme has now ended and you're not able to access any more of your super under this initiative. However, here's how it worked.
This initiative was intended for Australians who are were already unemployed and struggling to find work, or had lost a job or income as a direct result of the coronavirus pandemic. Citizens and permanent resident of Australia and New Zealand needed to meet at least one of the following eligibility criteria to access their super early as part of this scheme:
- You're unemployed
- You're eligible to get a job seeker benefit, youth allowance for jobseekers, parenting payment or farm household allowance
- You've been made redundant or had your working hours reduced by 20% or more since 1 January 2020
- You're a sole trader and you've had to pause your business operations, or your turnover has fallen by 20% or more, since 1 January 2020
Temporary residents who couldn't meet immediate living expenses also needed to meet at least one of the following eligibility criteria to access their super early:
- You're on a student visa that you've held for more than 12 months
- You're on a temporary skilled work visa and still employed
- You're on a temporary resident visa
How much of your super can you access?
The package allowed you to access up to $20,000 from your super before 30 December 2020. This was the maximum amount eligible people were able to withdraw, however you could have chosen to only withdraw some of this.
Did you withdraw money from your super in 2020? Here's what you need to know.
If you chose to withdraw money from your super in 2020, here are the positives and negatives of that move.
Positives of withdrawing from your super
- If you've been in severe financial hardship, accessing a small part of your super may have helped you stay on top of your bills and repayments over the past 6-12 months
- Withdrawing your super is tax free.
- If you didn't end up needing the money you can add it back into your super via a voluntary contribution.
Downsides of withdrawing from your super
- Your superannuation is there to help fund your retirement and by accessing some of it now, you've taken that money (and more) away from your future self. The money in your super benefits from compounded investment returns over the long term. That $10,000 today could be worth several times that by the time you retire. If you're in your 20s, it could be worth more than $100,000 by retirement.
- Super funds were down in 2020 because of the huge losses we saw in the stock market. However, these losses are only realised when you sell. If you made a withdrawal, you would have locked in that loss of capital.
- If you took money out of your super in 2020, you would have missed out on the market rebound that we've seen in 2021.
Does accessing my super affect my credit score or future borrowing power?
The money you withdrew from your super isn't a form of credit, so it won't be included in any official credit report. If you apply for a home loan in the near future, the lender may potentially be able to see that you've accessed the money from your super if they look at your transaction history. However, it's highly unlikely that lenders will look poorly on anyone who accessed their super early to pay for essential bills and expenses. So it won't impact your borrowing capacity.
"It is highly unlikely that withdrawing money out of superannuation will impact future loan applications. The banks are well aware of the financial impact during COVID-19 and will make exceptions for temporary solutions that had to be put in place by customers during this difficult time," said mortgage broker Marissa Schulze.
What are the tax implications?
You won't need to pay any tax on the money you withdrew from your super in 2020, as it's already been taxed at the concessional tax rate of 15%. Therefore you don't need to include this money in your taxable income when you lodge your tax return this year.
However, if you deposit the money into a savings account that you then earn interest on, you will be required to pay tax on the interest earned. And if you choose to add it back into your super via a voluntary contribution, it will be subject to contributions tax.
Can you recover your super after making a withdrawal?
You can make small, regular contributions back into your super when you're able to do so. QSuper's chief of member experience Jason Murray says the amount you contribute depends on your age and how quickly you want to recover the money you took out.
"Our modelling shows that if you're under 40 years of age, it is possible to recover a $10,000 withdrawal, including the lost investment earnings, by making after-tax contributions of $10 to $15 a week until retirement. Obviously, the sooner you plan to retire, the bigger the weekly amount to make up the difference. At 50 years old, for example, it's around $20 per week," he said.
If you want to recover the money you took out of your super, the sooner you start making extra contributions the better. According to QSuper, if you withdrew $10,000 and you want to recover this in your super balance within five years, you'll need to contribute $45 a week in addition to what your employer pays you. If you want to recover the money in 10 years, you'll need to make weekly contributions of $26.
Another way to help your super balance recover is by making sure you've just got the one super fund in your name (here's how to consolidate your super), as this will reduce your fees. You should also compare super funds to make sure yours is earning string returns and charging low fees. If you're interested in finding a new fund, you can see some of our best super fund picks to help get you started.