Three things to consider before accessing your super

There have so far been more than 950,000 applications from people who want to access their superannuation due to COVID-19 pandemic hardship.

Australians can access up to $10,000 of their superannuation this financial year under the Federal Government's coronavirus assistance scheme.

But there are drawbacks. Associate Professor Paul Lajbcygier from Monash Business School's Department of Banking and Finance says people should consider three key things:

1. Are you experiencing financial hardship?

The Australian Taxation Office (ATO) will only allow early access for those struggling to pay rent, meet mortgage repayments or buy food. You cannot withdraw the funds to set up your own self-managed super fund, buy a house or other investments.

"The government has put together a stimulus package that covers around six million workers with a fortnightly payment of $1,500. If people are experiencing hardship it is better to consider applying for this first before thinking of touching your superannuation," Associate Professor Lajbcygier says.

2. If you're close to retirement, it's harder to build it back

Australians on average retire with $200,000. According to the Association of Superannuation Funds of Australia, a 40-year-old male who loses his job now will have roughly $100,000 in superannuation.

"Withdrawing $20,000 represents a loss of 20 per cent. And if you add to that the downturn in equity markets of around 20 per cent at the moment, this man would need to make back 40 per cent of his superannuation," Associate Professor Lajbcygier says.

The situation is worse for women as they tend to retire with less superannuation as a result of early gender pay gaps, and for people nearing retirement.

"The problem arises if you are going to cash in and convert your equities into cash. Crystallising your losses now would be a big mistake."

3. Beware of scammers attempting to grab your cash

The ATO has warned about scammers trying to gain personal identifying information to steal funds, or charging for services that are free like gaining early access to your superannuation.

Their advice? Contact the ATO directly to confirm if any interaction is genuine.

If you receive a phone call, text message or email offering to help you release your super early, do not:

• provide your personal information
• click on any links.

Another element to consider is the insurance cover of your super fund. If your account is fully withdrawn or has a balance below $6,000, the insurance may not be available.

"Withdrawing your superannuation may affect your income protection insurance and your Life-Total Permanent Disability insurance cover," Associate Professor Lajbcygier says.

Paul Lajbcygier holds a joint appointment as Associate Professor in the Department of Banking and Finance and the Department of Econometrics and Business Statistics. His work focuses on computational finance, investments, asset pricing and market microstructure. 

This article was published in partnership with Monash Business School. 

Business News Australia