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Early access to superannuation for individuals affect by COVID-19

The government will allow individuals affected by COVID-19 to withdraw $10,000 from their superannuation account in 2019/20 under the hardship provisions. Also, a further $10,000 can be withdrawn if necessary, in the 2020/21 income year.

 

Eligible individuals will be able to apply for the withdrawals to the ATO via myGov for up to $10,000 before 1 July 2020, and a further $10,000 from 1 July 2020 for another three months. The withdrawals will be tax free, and it will not affect Centrelink payments.

The withdrawal mechanism is similar to that of early withdrawal due to severe financial hardship, where an eligible individual can make one withdrawal of up to $10,000 each income year. The difference is that unlike withdrawals due to financial hardship, the funds released under the COVID-19 scheme will not be subject to tax. Also, unlike severe financial hardship withdrawal, the member does not make an application to their superannuation fund provider, but directly to the ATO.

Normally, to qualify for a severe financial hardship withdrawal, the member will have to be:

  • • on income support payment for more than 26 weeks in a row, and
  • • unable to pay reasonable and immediate family living costs.

Under the COVID-19 early super withdrawal scheme, members can satisfy one of the following requirements on or after 1 January 2020 to be eligible:

  • • Being made redundant.
  • • Had working hours reduced by 20% or more.
  • • Be a sole trader and have their business suspended or reduction of turnover by 20% or more.

Basically, any individual whose income is reduced by at least 20% due to the impact of COVID-19 pandemic can be eligible for early access to their superannuation.

In addition, members can also satisfy the following eligibility requirements when they are:

  • • unemployed, or
  • • eligible to receive JobSeeker payment, Youth Allowance for jobseekers, Parenting Payment, special benefit or farm household allowance.

The scheme will commence, and the member will be able to apply for early release, from mid-April 2020.

While accessing your super tax-free may seem like a good outcome from the COVID-19 early access scheme, it must be noted that doing so could set your super back by at least a year in retirement planning.

 

The early access of your super will also cause the your super fund provider to cash out investments prematurely, and given the volatility of the financial markets, result in the realisation of substantial losses in the your portfolio.