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Money / Financial management

Here’s what experts say about tapping into super during COVID-19 – and what people really think

Of all the questions I’ve fielded from our Flying Solo community this week the most common has been: what is the government doing for sole traders?

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To quote Flying Solo alumni Annette Densham in her powerful column for today the options feel incredibly limited right now:

“Kate Carnell, the Small Business Ombudsman, went into bat for us a couple of weeks ago. She wrote to the PM asking additional support for sole traders and freelancers to keep them from going under. The option to go on Centrelink (paperwork overload anyone?), which means we basically have to be in dire straits to get help, or to go into debt with interest free loans or dig into superannuation (retirement is overrated). ”

What the Flying Solo community thinks about accessing superannuation

The new legislation granting access to withdrawing up to $20, 000 of your superannuation tax free – when they open the gates in April stands out. 

Keen to know what our community made of this idea I posted this callout to Facebook to find out. 

I’d like to know the problems with doing that and how we shouldn’t be relying on accessing our super? This is apparently the wrong strategy?”

For some, the $10,000 is the difference between being housed or homeless…”

“The main reason not to access your super is that it will have a massive impact on your super in the long term. It will cause an ongoing loss to you not just $10k for now. You hold shares in numbers, so the more you have the more $ you have. But when their value is low, you have to sell more shares to raise the same amount of money, then you will have less shares to recover your balance and grow, when the market bounces back. The less you have the less you gain and this compounds over time and can be very significant.”

As the week has progressed these views haven’t changed much. 

“It seems like a last resort.” 

“You need to be a registered Centrelink recipient. However, before you look at your super’s current balance, it might be good to have some calming aids at your side as you do. You might need something stronger than vodka & a couple of boxes of tissues.”

Over to the experts – here’s what 3 have to say

David Koch, host of Sunrise and founder of Pinstripe Media: 

“It’s your money. You’ve always had the ability to access your super in terms of financial hardship… but you’re taxed at 22% on getting your money out. Under this policy it’s a total $20k tax free. If you’re going to the wall, not being able to pay the mortgage or afford to live then access it. That’s life. When things get better make it a mission to replace that $20k and put it back in. Naturally super funds want you to keep it there because their fees are a % of your balance. Lower balance – lower fees.”

Peter Stanhope, co-founder of Gig Super, the superannuation fund for sole traders.

“We’re offering these people a leaky lifeboat,” he told Flying Solo. “It might help them stay afloat for now, but they risk sinking in retirement.”

“The other stimulus measures involve the government giving you money, where as super is your money, so generally speaking it makes sense to look for other support that might be available before you look at this one,” he says. “And for anyone that does elect to withdraw their super, we’d like to see the government introduce some real incentives to help people recover their money as quickly as possible.”

He has two suggestions for how this could be done:

  1. Allow people to put money back into super tax free:  Currently, if someone withdraws $20k from their super they’ll need to earn at least $23,500 in order to get the same amount back into their super.  Given they’ve effectively just loaned the money to themselves from super, they should be able to pay that loan back without being penalised.
  2. Increase the government co-contribution: “The government used to offer a co-contribution of up to $1,000 but that was reduced to $500.  If we raise the co-contribution back up to $1,000 that will also help lower income earners rebuild their balances faster”

3.  Christina Hobson, CEO of Verve Super

“This is already people’s money, the government is just allowing people to access it early. It may seem obvious to say it, but anyone who takes out money now, will have less available for retirement, which will mean less income later in life. The other issue is that the markets are down at the moment, so if someone takes out money now they won’t have it invested when the market rebound,” she said.

“When people look at their balances now they will see that they’ve gone down, perhaps to where they were a year ago, but if you take out the money then that loss becomes real. The policy has been designed to give people in real hardship access to quick money, if someone can’t meet their basic living costs in any other way, then accessing their super will help them to do this. But if someone can meet their basic needs through their savings, government assistance or through loans from family members then they may not necessarily need to withdraw their super. The other option is that you don’t need to withdraw the full amount, so just taking out what you need could be a better option. I strongly recommend anyone who is unsure about their decision to speak with a financial advisor.”

What do you think of these options? Clear as mud? Helpful? Tell us in the comments or send me an email: [email protected]

 

Lucy Kippist

is an experienced Australian editor with experience in writing, podcasting radio and television, with previous senior editorial roles at News Corp news.com.au, Kidspot and Kinderling Kids Radio. In her current role as editor of Flying Solo, Australia's #1 website for solo business owners she is pursuing her passion for women in the small business space. Connect with her on Twitter and LinkedIn.

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