Coronavirus and early access to super

Recently, the government introduced a new compassionate early release measure that allows individuals to access up to $10,000 from their super during the 2019-20 fi nancial year, and a further $10,000 during the 2020-21 fi nancial year.

When withdrawing any amount of money from your super, it’s important to understand the eff ect it may have on your

retirement prospects. This is because you are potentially missing out on the benefi ts of compound earnings – particularly when this money is released many years before you retire.

Compound earnings are the earnings you get on the money you initially deposit and the earnings you’ve already made. For example, if you have an accumulation

balance, you’ll earn returns on this initial balance AND on the returns you have already made up until that point.

Consider the long-term impact on your retirement savings The following examples explain how accessing your super today might impact your retirement outcome.

A fe w th in g s to t h in k a b o u t b e fo re a c c e s s in g s u p e r e a r ly

Callum is aged 32 and elects to withdraw $20,000 under the new compassionate early release measure out of his super balance of $35,000 leaving a current balance of $15,000. Fast forward 35 years and Callum, aged 67, retires from the workforce. Assuming an earnings rate of 5%, Callum would have

$126,708 less in his accumulation account at retirement, due to reducing his balance 35 years earlier.

S o u rc e : A S IC ’s M o n e y Sm a r t c a lc u la to r, w w w .m o n e y sm a r t .g o v .a u . H a v e n o t a s su m e d a n y fe e s , c o s ts , ta x e s , in fl a t io n ra te o r in it ia l o r u n d e rly in g a c c o u n t b a la n c e . T h is is a n e x am p le o n ly a n d m ig h t n o t re fl e c t y o u r p e rs o n a l fi n a n c ia l s it u a t io n .

Case study 1

Coronavirus and early access to super

Case study 2^

Joe & Susan are both aged 30 and each have $35,000 in their super nest egg. They have both experienced financial hardship as a result of the financial impact of COVID-19, and are now eligible to access their super under the new compassionate early release measures.

¢ Joe decides to take $10,000 out of his super. Reducing his current super balance to $25,000. As a result his balance at retirement (age 67) will be $327,616.

¢ Susan decides not to take out $10,000 of her super, so retains her current $35,000 balance. Her balance at retirement (age 67) will be $350,019.

¢ By leaving her super invested, Susan will have $22,403 more in retirement than Joe.

A s s u m p t io n s : B o th o n a n in c o m e o f $ 5 0 ,0 0 0 ; E a rn in g s ra te o f 6% (a f te r fe e s a n d t a x e s ), a n d 3 .2% in fl a t io n ; F ig u re s c a lc u la te d v ia t h e L ife t im e S u p e rm o d e lle r c a lc u la to r, e s s s u p e r.c o m .a u /c a lc u la to rs

It’s important to remember that accessing your super now will lock in recent investment losses, and might mean that your super misses out on the gains. Particularly for younger members whose super may have decades to recover.

Our message at this time is to stay focused on the long-termSuper is a long-term investment, so while investment markets can be unpredictable over the shorter term, they typically recover over the longer term. If you’re approaching retirement, or are in retirement, it’s still important to stay focused on your long-term investment strategy and consider all your options before making any significant changes.

Our members’ retirement prospects remain our top priority. While we understand that members may need to access their super during these difficult times, we advise that doing so in times of market volatility, should be regarded as a last resort.

We’re here to helpShould you decide to access your super at this time, we’re ready to help. We encourage you to speak to our experienced consultants before making decisions about your super. For more information please visit esssuper.com.au/earlyaccess or call us on 1300 650 161 to make an appointment with one of our experts.

L o c k in g in lo s s e s in fa llin g m a rk e t s

^ T h e p u rp o s e o f t h e e x am p le s a b o v e a re to s h o w y o u th e e ff e c t w ith d raw in g $ 1 0 ,0 0 0 a n d $ 2 0 ,0 0 0 f ro m y o u r s u p e r o n c o m p a s s io n a te g ro u n d s d u r in g th e 2 0 2 0 a n d 2 0 2 1 fi n a n c ia l y e a rs .

E S S S u p e r h a s m a d e re a s o n a b le e ff o r t s to e n s u re th e a c c u ra c y o f t h e in fo rm a t io n p ro v id e d . T h e in fo rm a t io n a n d e s t im a te s p ro v id e d a re g e n e ra l a n d s h o u ld n o t b e re lie d u p o n a s a t ru e re p re s e n ta t io n o f a n y a c tu a l s u p e ra n n u a t io n e n t it le m e n t s o r b e n e fi t s f ro m a n y p a r t ic u la r s c h e m e o r re lie d o n a s a b a s is u p o n w h ic h to a lt e r y o u r fi n a n c ia l s it u a t io n w ith o u t a d v ic e f ro m a p ro fe s s io n a l. Yo u s h o u ld a s s e s s y o u r o w n fi n a n c ia l s it u a t io n a n d c o n s u lt a fi n a n c ia l a d v is e r b e fo re y o u m a k e a n y c h a n g e s to y o u r fi n a n c ia l a ff a ir s .

In v e s tm e n t re tu rn s c a n n o t b e g u a ra n te e d a s in v e s tm e n t m a rk e t s c a n b e v o la t ile . A s a c o n s e q u e n c e , re tu rn s c a n b e p o s it iv e o r n e g a t iv e . P a s t in v e s tm e n t p e r fo rm a n c e is n o t a re lia b le in d ic a to r o f fu tu re p e r fo rm a n c e .

B e n e fi t s in E S S S u p e r ’s A c c u m u la t io n P la n , In c o m e S t re am s a n d B e n e fi c ia r y A c c o u n t p ro d u c t s a re n o t g u a ra n te e d o r u n d e rw r it t e n b y th e V ic to r ia n G o v e rn m e n t o r E S S S u p e r, a n d E S S S u p e r d o e s n o t c o m e u n d e r t h e ju r is d ic t io n o f t h e A u s t ra lia n F in a n c ia l C o m p la in t s A u th o r it y .

Investment earnings: B a s e d o n th e g e n e r ic G ro w th o p t io n , s u p e ra n n u a t io n a n d p e n s io n a c c o u n t s a re a s s u m e d to e a rn a n t ic ip a te d in v e s tm e n t re tu rn s o f b e tw e e n 2 .7 5% a n d 7 .5 0% p e r a n n u m b e fo re fe e s a n d t a x . T h e e a rn in g ra te s p ro v id e d b e lo w re p re s e n t t h e lo n g te rm t a rg e t re tu rn s (s e e A n n u a l re p o r t ) fo r e a c h in v e s tm e n t o p t io n . E a rn in g s in t h e s u p e ra n n u a t io n a c c o u n t a re a s s u m e d to b e t a x e d a t t h e re le v a n t ra te (b a s e d o n th e p e rc e n ta g e o f fu n d s in v e s te d in s h a re s , a n d a llo w in g fo r d iv id e n d im p u ta t io n a n d th e c a p it a l g a in s t a x c o n c e s s io n ). In v e s tm e n t e a rn in g s a re a s s u m e d to b e c re d ite d c o n t in u o u s ly to t h e fu n d .

E m e rg e n c y S e r v ic e s S u p e ra n n u a t io n B o a rd A B N 2 8 1 6 1 2 9 6 7 4 1 (E S S B ) is t h e T ru s te e o f t h e E m e rg e n c y S e r v ic e s S u p e ra n n u a t io n S c h e m e A B N 8 5 8 9 4 6 3 7 0 3 7 (E S S S u p e r). B o th th e E S S B a n d th e o p e ra t io n s o f E S S S u p e r a re g o v e rn e d b y th e Em e rg e n c y S e rv ic e s S u p e ra n n u a t io n A c t 1 986 a n d re la te d le g is la t io n .