Accessing your super: Risky move or opportunity?
Sarah Newlyn is a 28 year old woman who's about to withdraw $20,000 from her retirement savings as the Coronavirus puts pressure on the finances of millions of Australians and looks set to test the stability of the country’s superannuation system.
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“Pulling money out of our super is a bit if an opportunity for us for right now,” she says, adding that she has “tons of time to top up her super.”
“There’s not a lot of point in my partner and I having about $250,000 in our combined super funds if we are having difficulty paying our two mortgages.
“My mental health is suffering and we now need to sell both our Toowoomba properties and plan to relocate to the Gold Coast to be near family and increase our chances of finding more regular work,” Ms Newlyn says.
Superannuation funds are bracing for between $25 billion to possibly $50 billion in withdrawals after the federal government announced it would give people affected by the Coronavirus early access to $10,000 in savings over two financial years – giving them $20,000 in total.
It comes as the superannuation balances of millions of Australia's suffer as fear and panic over the uncertainty of the Coronavirus push Australian shares down about 30% since the start of this year.
For many people like Sarah, selling out of superannuation is the chance to stay afloat in the current environment.
It means a few things right now.
1. Immediate cashflow to manage financial hardship
2. Depletion of retirement savings and pressure to make it up with additional contributions at a later date.
3. Crystalizing recent share market losses
4. Can have an impact member returns, particularly for those about to retire, if mass withdrawals or moves towards cash force funds to liquidate assets.
Chris Bates mortgage broker and financial adviser at Wealthful is not a fan of being able to access your super.
“Super is not a tool to support people now it is there to support people when they are older.
“If you really are in financial hardship, then you can already access your superannuation. I don’t think the government needed to change the rules again as it just makes people even more distrusting of the system.
Mr Bates adds that as superannuation funds are forced to sell assets because of the early withdrawals or as some members move to cash, it means they are doing so at the worst time for all members.
In Ms Newlyn’s case she understands that accessing her super might not be the smartest long term financial move but she says the pressure the money stress is putting on her, is unbearable.
“My mental health is suffering at the moment and I am hoping if we free up some cash and reduce our debt exposure that in the short term our finances will improve and that will be better for the wellbeing of our family.
“I am also conscious that as a woman there is a gender pay gap in super but having already been with an employer who pays above average in the super guarantee (SG) and now working for myself in a social media consultancy, I am confident in my ability to top up my super.”
Emily Lanciana, financial planner Apt Wealth says accessing $10,000 now could mean forgoing $100,000 in ten years.
“Obviously there are people who are in a position and they have been let go from their jobs and they can’t put food on the table who just need the money.
“But there is also other government support out there and I would stress if you do access your super, then have a plan to top it back up when you can afford to.
Fear is mounting that by giving Australians easier access to their superannuation, that some funds, particularly those with larger holdings of illiquid assets and low member inflows, might collapse if members either switch out of their funds or move to cash.
Indeed, some industry super funds asked the government or the Reserve Bank of Australia to underwrite their liquidity needs at this time on the basis that there could be more people than the government expects to withdraw their cash from super because of the coronavirus crisis. That proposal has since been rejected by the government.
“A lot of funds with low members and low levels of new money coming in, could actually go under in these times,” says Mr Bates.
The bigger diversified low-cost funds will do better during this time. Australian Super and Sun Super are among those.
“I don’t think there will be a run on super funds withdrawals but the reality is that as more people look to access their funds early, it will have an impact on all returns,” said Mr Bates.
Bianca Hartge-Hazelman is the founder of the Financy Women’s Index and specialises in writing on women’s money matters for Financy and Yahoo Finance.