InFocus: Why early access will make sense for some

3 April 2020

The two big superannuation measures in one of the Government’s latest stimulus packages will be a boon to those who manage their own superannuation – as they should be.

The dreaded COVID-19 virus plays no favourites in who it affects, whether it’s battlers or SMSF trustees, and so the Government’s response should recognise the right of all of us to as much financial stability as is realistic given the economic dark times ahead.

Consider the first measure: the special, temporary access to pull money out of your superannuation savings. It’s true that SMSF members typically have higher balances than other super funds’ members and are quite often wealthier overall. Yet it’s also true that in these unusual times, many of them are directly and enormously affected by the financial fallout of COVID-19.  

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Those SMSF trustees still in the accumulation phase of their super include small business owners whose revenue has dropped to zero. They might be IT professionals who have been stood down, general managers at airports, senior flight crew who have vastly reduced hours or consultants whose previously vibrant practices have been decimated. 

People who may seem financially comfortable can suddenly become financially insecure too. An SMSF trustee’s pre-crisis lifestyle and expenses are usually carefully built around a level of income they had come to count on. They cannot immediately reduce their expenses, such as mortgage repayments, to match their new circumstances – which can include a plummet in their income.  

This is where allowing everyone – including SMSF members – to access a relatively small part of their superannuation savings ($20,000 over two years) makes perfect sense.

There is absolutely no logic in forcing people to protect their retirement savings at all cost if it means losing their home today. Allowing Australians, including the wealthy, to tap into their own money can help keep the wheels of the economy turning during this anxious COVID-19 era, and keep people in jobs and in their homes. And it does so without costing other taxpayers.

Take this family of five. The father has been an IT executive with a travel company, his wife runs a successful restaurant and their three children are in high school and university. Normally they have no trouble meeting their regular expenses, including mortgage payments on their Sydney home. They have been carefully building their SMSF balance over the last few years.

Then COVID-19 struck – fast. The father was made redundant in early March and the mother has been forced to close her restaurant. While her business is adapting by providing takeaway in place of restaurant service, her turnover and hours are way down. Her husband’s employer may be able to lean on the Government’s newly-announced JobKeeper scheme but his income is still likely to be well below normal levels and quite possibly too low to pay locked-in living costs such as their mortgage. 

In due course, Australians will be allowed out of their homes for the pleasure of a night out, and the mother’s restaurant will hopefully open its doors once more. Her husband’s skills will also eventually be in demand again as society and the economy recovers from COVID-19. Until then, the ability to tap into their combined superannuation to the tune of $40,000 over the next few months might just be enough to see them through.

The second measure (halving minimum pension payments) will also help many Australians. It lets them continue to receive the great benefits of a superannuation pension because their fund no longer pays income tax on some or all of its investment income. 

It also takes some pressure off in finding the cashflow to make those pension payments. Many retirees have watched anxiously as markets fall and were (until 29 March) faced with selling assets at the worst possible time, just to make sure they were able to meet minimum legal pension payments. 

In effect, they wouldn’t have been able to tighten their belts as almost all of us will need to in the months ahead. Even if they chose not to spend the money, they still had to take it out of the fund that would provide for their retirement years.

This measure is perfect for them. They can pull back on their pension payments, leave more in their retirement savings pool and hope to ride out the current wild ride with a brighter old age ahead of them (as long as they can stay healthy through social distancing, of course).

Any relief measure that touches superannuation savings always risks being portrayed as ‘benefiting the rich’ or ‘robbing workers’. If the current 

-19 crisis teaches us anything, it should be that many of life’s greatest existential threats do not discriminate.

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