Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper PDS and TMD.

Tania: Welcome to Super Informed Radio, UniSuper's official podcast. I'm Tania.

Lyndon: And I'm Lyndon.

Tania: It's June 2020. What's happened? We are six months into the year and what a year it's been.

Lyndon: What a year it has been. I don't think any of us quite imagined we would be in the position that we're currently in. I mean, here we are in our little podcast studio, Tania, and basically, no one else is here, but us.

Tania: I know. It's a little bit strange, but today, we're going to talk about the government's scheme to access your super early and what that means for you now and in the long-term.

Lyndon: That's right. So, you've probably heard about the early access to super scheme that the government introduced a couple of months ago now, for people who were experiencing or are experiencing financial stress and the like. Basically, that's accessing up to $10,000 this current financial year to 30 June 2020, and potentially, a further $10,000 in the following financial year. So what we thought we'd do today is just unpack that a little bit, what it is, how you go about applying, and what some of the impacts are, not that we're taking a view one way or the other, but just making sure everyone has information that they need to make that decision.

Tania: Yeah, and look, it may be something that you need if your working circumstances have changed. We thought it best to speak to Charles Azzopardi, who we've had on Super Informed Radio before.

Lyndon: That's right.

Tania: He's a private client advisor with UniSuper Advice.

Lyndon: So, in a very socially distanced manner, we dialled Charles in and had a chat about the early access to super scheme. Let's take a listen.

Lyndon: Charles Azzopardi, welcome to Super Informed Radio once again. Great to be with you.

Charles: Thanks for having me, Lyndon and Tania.

Tania: Today, we're talking about early access to super. Could you just run us through, at a high level, what it involves?

Charles: Yes, so, it is a very good or interesting measure that the government have released here to provide people with more flexibility. And of course, we do have to recognise that we are going through some pretty difficult times, especially both, you know, from a health and economic crisis. So, there are people there that will very much welcome this change.

I guess, at this point in time that the recording is happening, we've got the current financial year, so, 30 June 2020, that can be released up to $10,000, where the criteria can be met. And then, for next financial year, from 1 July 2020 to the 24th of September, as at the current date that the ATO have provided for the second amount of $10,000.

Of course, it is worth checking for those who meet the eligibility criteria, which we'll go into shortly, but for those who can meet it, they can also consider other forms of support first, or in addition to, such as potentially a job-keeper payment via their employer or job-seeker payment through Services Australia.

Lyndon: So, the eligibility criteria, what are they? Like you can't just apply out of the blue, like you've got to be able to meet some hurdles, yeah?

Charles: Yeah. The tax office have put out some clear guidance on what the criteria is, so they simply state that you must satisfy one or more of the following requirements. So, if you are unemployed or you are eligible to receive a JobSeeker Payment, or a Youth Allowance for job seekers, or a Parenting Payment. And then, the other avenue is that, on or after the 1st of January 2020, you've been made redundant or your working hours have been reduced by 20% or more. And for sole traders, your business has been suspended or there's been a reduction in your turnover by 20% or more.

Tania: And if you meet the eligibility criteria, can you nominate the amount that you want or does that get decided for you? We're hearing a lot through the media that the average payout is around the $7,000 mark.

Charles: Yeah, that is correct, yeah. People can choose the amount. The process is that they need to apply for that using the ATO services within their myGov login, and the prompts enable you to select an amount up to the $10,000 threshold. But one thing I think that is important that people need to be familiar with is to be engaged with their superannuation fund, perhaps log in or make the call to see what your balance is and understand what implications there might be. And of course, some younger super-accumulating members may not have up to $10,000 as yet.

Lyndon: So, whether it's 10K, or 7K, or whatever amount it is that people might take out of their super, I think one of the key things to get across is the potential impacts to withdrawing super early. I mean, obviously, if you need to do that, that's what you need to do, but can you give us, Charles, a bit of an overview of like what the potential impacts of withdrawing super early might be? Like, say, between now and retirement, like how much you would be better off in the end if you didn't withdraw? Do you know what I mean?

Charles: Yeah, absolutely. And this is where it can get quite interesting because the effects can be very significant over time. And the younger a person is, the longer those funds would otherwise be in there earning a rate of return and that compounding over time. Of course, it's very hard to quantify these things with precise or with any, you know, precise accuracy because we don't know exactly how financial market's going to play out. But, when we're looking over periods, you know, over, you know, 10 years for many people are away from their retirement and for many people who are aged 30 or younger, they might be looking at 30 to 37 years. And so, the amounts are actually very large.

There's been a study done by Conexus together with Actuaries Institute and the Super Consumers Australia. And they've looked at this in terms of people who are aged 30, 40, 50, or 60. And the impacts are relatively significant. So, for example, for a 60-year-old who's 7 years to retirement, assuming they retire at 67, aligned with the age-pension age, the impact is 24,000. So, there is another $4,000 of difference. And that's brought back into today's dollars, so it'll be larger in future dollars. But to talk about what that means, it's referring back to the purchasing power of that same money.

Lyndon: So, is that if they withdrew 20,000?

Charles: Yeah, correct, yeah, yeah. So, if they withdrew $10,000 in this current financial year, prior to 30 June 20, and then did so again next financial year, prior to 24 September 20, that $20,000 would otherwise, you know, come to an approximate $24,000 in today's dollars at 7-years’ time.

Where it gets more interesting is, if a younger person is considering the same option of taking out the $20,000. So, for a 50-year-old, that $20,000, coming back to today's dollars, they're missing out on $30,000 at their retirement of 67. And for a 40-year-old that $20,000 would amount to $39,000 at 67. And then, for a 30-year-old that 20,000 grows to 50,000. So, it's quite a significant difference.

Tania: That's a huge amount.

Charles: Yeah, absolutely.

Tania: Yeah, you think, you know, $20,000, oh yeah, that can't make that big of an impact, but in actual fact, $30,000 at retirement is a huge amount of money.

Charles: Yeah, it is. And again, so, it comes down to that trade-off between what you need to keep yourself going versus what you might be doing. As, you know, we read about in the papers with respect to other expenditure on the rise, which is a bit of a concern, as a result of receiving these payments, it's really something that should be considered when it's there for managing your financial security in the interim, until things get better.

And of course, when we're talking about something like 50,000, then, you know, it's going to make an impact on what that retirement income looks like from 67 to that person's life expectancy.

Tania: Have you got some figures, what that looks like in terms of your fortnightly income?

Charles: Yeah, that same study looks at, for instance, the...if we're looking at, say, the 50-year-old where it was 30,000 as an impact by taking out 20,000 today, the impact on their annual income was 1,700. So that's an annualised income that's linked with inflation over time. And for the 30-year-old, that 20,000 grew to 50,000, and then, translating that to an income, that looks like 2,800 per annum over their retirement years. So...

Lyndon: Basically, if I understand it, in that example, when you're retired, you're getting 2,800 less per year from your super?

Charles: Correct, yeah. Yeah, that's how they translated that.

Lyndon: So, quite significant potentially. Obviously, if you need to withdraw those funds, then that's what you need to do, but it's just important to realise the potential long-term impact.

Charles: Yeah. I think that's exactly well-said because I don't think we would be upset with ourselves if it was taken for the right reasons, but you may feel differently about it later on in life if you behave somewhat irresponsible with it. Which, unfortunately, there has been some of as reported in some newspaper articles, there's being an increase in expenditure in the fortnight, following receiving these payments.

Tania: Yeah, there was some data that showed that it's being spent fast and not saved or not being put into things like, you know, rent payments and mortgage payments.

Charles: Yeah. So, there's been, I guess, an increase in a lot of different areas, but yeah, the most concerning ones are things like...for men, there's been looks like a 12% increase in gambling. For women, that's a much lower number of 6% in gambling. But, you know, other areas like clothing or department stores up around 11%.

Tania: So, these withdrawals aren't really being used as the lifeline that the policy intended them for?

Lyndon: Or some of them.

Tania: Some of them. Some of them, yeah.

Charles: Yeah. And that's where, I guess, it's important for people to, you know, be engaged with what it is that they're doing, you know, the right type of reading, listening to things like this podcast or, you know, understanding what is happening in society just so that they do think about I guess what they need to do for now but make sure that they're not doing themselves an injustice for down the track.

Lyndon: There was actually a Sydney Morning Herald article, dated the 1st of June, which said something like, "New spending data shows 40% of those accessing their super, experience no drop-in income during the pandemic." That's...

Charles: Yeah. That can be partly explained because the eligibility criteria has been a fairly wide net that's been cast, And so, some people might have, for instance, experienced a drop in their income, and then later on, there's been other changes to their circumstances or the circumstances of their employer, yeah, which has then...I mean this has been a very fast changing environment where...it's not quite simple to say that everybody has had a negative impact, there's been those that have had a lot more work or those that maybe have the flexibility to change what they're doing. And if they can meet the criteria from one of those options, some people are quite keen to get their hands on their super for a variety of reasons. So...

Tania: Oh, I absolutely don't blame them. I mean the thought of being able to get with a mortgage myself, I mean, if I could take out a lump sum of my super, I would probably take that option because you don't think about the long-term impacts initially, like you just think for the now. But it's really good to see those figures and how much of an impact it has on your retirement if you do take out what you think is a good amount of money now, it could actually equate to being a substantial amount of money in your retirement, which could be the difference between, you know, if you're allowed to eat out or you're eating baked beans for the rest of your life. That's an extreme example but, you know...like it's hard when you're in your 20s, your 30s, even your 40s, it's very hard to think about the impact of taking out $20,000 on what it does to your retirement. And I think that's why we're wanting to talk about it today because, as long as you know all the information and you know all the facts, obviously, if you need to access you super, by all means, that option is there, but there is an impact down the track that you need to be aware of.

Charles: And there is a very good tool on the Moneysmart government website that allows people to actually enter in their age. So, I gave some examples there when someone's 30, 50, or, you know, 60, but they can actually throw in an age, a retirement age and the amount that they're withdrawing. And that gives people another way to provide that estimate. Now, there's different studies, of course different assumptions and inputs can, you know, alter the outcomes in terms of your age of retirement and the amount that you withdrawing and also just the assumed rate of returns, but it is a good tool that's available there on Moneysmart.

Tania: That's a really great resource, we'll definitely have to put that link in our show notes.

Lyndon: So, Charles, we've talked about some of the potential long-term impacts of accessing super early, what are some of the short-term impacts that members might see if they take 10-20K out of their super?

Charles: Yeah, Lyndon, good question. I think the most critical one is when it leads to an account closure because that can cause a bit of, you know, disruption between the member themselves or their employer, you know, in terms of facilitating payments but also can lead to the cancellation of their insurance, if the insurance needs to be continued to be funded through premiums from their accumulation monies. That can be an important thing. And so, with a much-reduced balance, or a closure of a balance, that can put the funding of that insurance in question.

So, I think that's an important thing for people to be looking at is, you know, what their current balance is and what it's going to get reduced to as a result of their payment, but then, of course, what premiums need to be there if, you know, it's important for them to be retaining that insurance. So, insurance may include something such as life insurance, or a TPD, and that could be a very significant sum for...

Lyndon: TPD meaning total and permanent disablement?

Charles: Total permanent disablement, that's right, yeah. And that can be a very, you know, significant sum for, obviously, you know, a very stressful time for the family to navigate through a difficult financial situation. And then, there's also income-protection insurance. And I guess the nature of that one can vary significantly for people, particularly at times like now. But for most people, this crisis should be just the short-term one. And so, it would be potentially quite a shame for a lot of people if they put their insurance off the line, and then, they have to reapply for insurances. And that could lead to other consequences, depending on the application and medical disclosure, and so forth, and what insurance they can get. So... I think that's worth being aware of.

Lyndon: If someone listening to this podcast was concerned about that, what's the best thing for them to do? Should they ring UniSuper and have a chat to someone from our contact centre or could they see a Super Consultant, like one of our people on campus or...

Charles: Yeah, so they can do both of those options. There is a financial-assessment advice team, they can provide general advice to help people navigate or make them more aware of, you know, their current accumulation or defined-benefits structure, what funding is needed to retain their insurance, what their insurance actually is and things like that. And of course, yes, there are Super Consultants who would see people on campus. Of course, during these COVID times, we are working from home and they're still conducting appointments, again, through internet video link. So that's another option there. And that can be arranged by appointment using the UniSuper website.

Lyndon: Well, Charles, thank you so much for joining us here remotely, I might add, for Super Informed Radio. We love having a chat to you, and yeah, thanks so much.

Charles: Thank you, Lyndon and Tania. Always a pleasure to join you on these very valuable discussions. I hope, our members gain a lot from it too.

Tania: Charles Azzopardi there from UniSuper Advice talking about the temporary early access to super scheme.

Lyndon: Yeah, so just recapping a couple of those resources which we just mentioned, we will link to them in our show notes anyway, but you can go to moneysmart.gov.au/covid-19/accessing-your-super. So that's a government website. There's a host of resources there including that calculator that helps estimate the impact on your retirement savings if you access your super early.

Tania: I will definitely be checking out that calculator. I think that sounds like a great resource.

Lyndon: I think I'm gonna go there, too.

Tania: You can also access our website, which is unisuper.com.au/coronavirus. There's investment market commentary, information about early access to super as well as frequently asked questions. And always if you need to get in touch, call us on 1800 331 685.

Lyndon: And that's it for today. We'll see you next time.

Tania: Bye for now.

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