Should you redeem $10,000 from your superannuation fund

If you have been financially affected by COVID-19 you may be aware that you may be eligible to access funds from your superannuation.

Eligible citizens and permanent residents of Australia or New Zealand can:

  • apply for up to $10,000 in 2019-20; and
  • apply again for up to a further $10,000 in 2020-21

To apply for early release of your superannuation you must satisfy one or more of the following requirements:

  • you are unemployed

You are eligible to receive one of the following:

  • JobSeeker payment
  • youth allowance for job seekers (unless you are undertaking full-time study or are a new apprentice)
  • parenting payment (which includes the single and partnered payments)
  • special benefit
  • farm household allowance

On or after 1 January 2020 either:

  • you were made redundant
  • your working hours were reduced by 20% or more (including to zero)
  • you were a sole trader and your business was suspended or there was a reduction in turnover of 20% or more

Temporary residents must be in one of the following circumstances:

  • you hold a student visa that you have held for 12 months or more and you are unable to meet immediate living expenses
  • you are a temporary skilled work visa holder and still employed but unable to meet immediate living expenses
  • you are a temporary resident visa holder (excluding student or skilled worker visas) and you cannot meet immediate living expenses

Clearly, if you access your superannuation now, it may affect your future superannuation balance or retirement income stream. So it is a trade-off between your needs now and in the future. My advice is to first check with your superannuation fund where your superannuation is invested, before making any redemption decisions. 

Your superannuation

I recently authored the article “Where is your superannuation invested”? In this article, I identified that there is no universal definition of a “balanced” superannuation fund. Furthermore, there is no universal industry definition of the asset allocation of a “balanced” fund.

At the time of writing the article, I pointed out the Hostplus balanced default option based on its website, had 100% of its funds invested in Australian and International shares, property and other alternative investments such as private equity and infrastructure. That is, the asset allocation for cash and fixed interest was 0%.

Subsequent to writing that article the major financial newspapers questioned the liquidity of the Hostplus fund. I am not criticising Hostplus or any other fund, however I am emphasising that you need to do your due diligence to determine where your superannuation is invested.

In some cases, people may have more than one superannuation fund. One fund may be growth-orientated, that is a high percentage of your superannuation assets are invested in Australian and International Shares, as well as property and alternative assets such as private equity and infrastructure. The second fund may have a more conservative asset allocation, that is, the majority of the funds are invested in cash and or term deposits. Given that the stock market indices have declined substantially over the past four months it would be wise to access the superannuation fund with the predominant cash investments rather than the growth-oriented fund. By taking this option you are not realising a loss on your superannuation investments or liquidating the investments in a depressed market.

In other cases, you may have a retail fund or a Self-Managed Superannuation Fund (SMSF). In such cases, you may be able to redeem cash directly from the fund without the need to sell any of your investments.

Once you have analysed your superannuation investments, you need to determine how anxious you are for the $10,000. For example, if your day to day living expenses exceed your income, and you have little or no funds outside of super, you may have no option but to redeem your superannuation.

If you are concerned about your level of debt such as credit cards, personal loans and your mortgage, you may be able to restructure your finances by talking with your bank. The bank may offer temporary relief for your mortgage payments or change the loan from principal and interest to interest only.

If you are renting, you may discuss your circumstances with your landlord to negotiate a reduction in rent or even a rent free period.

In summary, it is prudent to explore all options before withdrawing funds from your superannuation fund.

Should you require more information about redeeming your super, please feel free to contact Peter Quinn by submitting an online enquiry or calling on +61 2 9580 9166.  We also offer a FREE 45-minute consultation should you have other financial planning, taxation or superannuation issues you may wish to discuss.

The information in this document does not take into account your personal objectives, financial situation or needs, and so you should consider its appropriateness having regard to these factors before acting on it.  It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.