The ability to access up to $10,000 of your superannuation this financial year, tax-free, if you are unemployed as a result of COVID-19, may seem like a good option but it will come at a cost.
Slater and Gordon Senior Associate (Superannuation/TPD) James Hunter said the Federal Government’s measures would mean that some people who take advantage of this option would fall below the $6,000 mark in their fund, causing their default insurance to be cancelled automatically.
From 1 April, default insurance is due to be cancelled automatically if you are under 25 years old, or you had less than $6,000 in your fund (as at 1 November 2019), or if your account has been inactive for 16 months or more, as part of the Federal Government’s ‘Putting Members’ Interests First’ and ‘Protecting Your Super’ reforms.
“The reality is that some people will have their hours reduced by 20 per cent or more, be made redundant, or sole traders will have reduced turnover as the nation struggles to address COVID-19,” Mr Hunter said.
“While accessing $10,000 may seem like an easy way to keep afloat during tough economic times, you need to be aware of the downsides.
“Importantly, in relation to your insurance if you have either reduced or no contributions entering your fund, the ongoing administration fees, other fees, and insurance premiums together with the $10,000 lump sum could reduce your account balance to less than the $6,000 mandated limit.
“If this occurs, your Total, Permanent and Disability (TPD), life insurance and income protection may be cancelled. You will need to contact your superannuation fund to “opt-in” to continue being covered. If you do not contact them to continue receiving this insurance, you may find yourself uninsured should the worst happen, and you suffer a life changing injury or illness.”
He said the Federal Government should not be automatically removing superannuation insurance from potentially vulnerable people next month and the reforms should be delayed.
“The super funds will need to be contacting each affected member to offer them the ability to opt-in to insurance before it’s cancelled. If a member receives any correspondence regarding this, it’s essential that they do opt-in to keep their insurance going,” Mr Hunter said.
“Many people will slip through the cracks in this climate.”
The Australian Institute of Superannuation Trustees made several very important observations about how withdrawing such a significant amount will affect your retirement savings, Mr Hunter said.
“These observations have ranged from reducing the value of your superannuation, leaving you without adequate future savings and losing the ability to access insurance within your superannuation.
“Even temporary access to your superannuation fund could reverse the benefits you have accumulated specifically for retirement.
“If the current pandemic causes you to struggle financially, contact the ³Ô¹ÏÍøÕ¾ Debt Helpline on 1800 007 007 and get some help that won’t cost you your future.”
