Samuel Clarke knows withdrawing his retirement savings early is not ideal.
- Australians are allowed to access up to $10,000 of their superannuation this financial year under the Government’s coronavirus assistance scheme
- Business owner Samuel Clarke has withdrawn funds from his super, saying “it’s survival money”
- Data shows that a 30-year-old who withdraws $10,000 now could end up with $25,000 less super when they retire
But the digital strategist, whose business is down about 60 per cent, says the cost of a young family and unrelenting business overheads have left him with no choice.
“The main bank account is overdrawn and we’ve had to move funds into another account just to buy groceries,” the father of two children under three told 7.30.
Mr Clarke is now one of 900,555 applicants who have been approved for a release of up to $10,000 of their superannuation under the Federal Government’s coronavirus assistance scheme.
Under the Government’s hardship scheme, people who have taken a financial hit because of COVID-19 can apply to access $10,000 from their super this financial year, plus another $10,000 next year. It is for people who have been made redundant or had their hours reduced, and sole traders who have seen a drop in income of 20 per cent or more.
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Biggest super withdrawal ever
The Government expects around 1.7 million Australians to withdraw around $28 billion of super the biggest and most sudden withdrawal of superannuation in Australia’s history.
Financial experts say they are concerned by the precedent this access will set.
Analysis from superannuation consultants Chant West shows a 30-year-old who takes out $10,000 now could expect to have about $25,000 less super when they retire, in today’s dollars.
That makes about a $1,400 per year difference to their retirement income.
If that 30-year-old wanted to try to make up for the lost ground, they could look at contributing an additional $200 per month for about five years when they return to employment.
“It’s not something I think anyone would be wise to undertake lightly,” Mr Clarke said.
“This is money that should be saved for retirement, ideally, but we’re in exceptional circumstances.”
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‘It’s survival money’
Samuel Clarke photographs a product for a website.(ABC News)
Mr Clarke’s business, Salt Kreative, has been hit by the flow-on effect from the coronavirus crisis.
Business is down about 60 per cent after both a reduction in work from key clients, and clients increasing the amount of time before they pay their bills.
“That’s [created] the sort of cash flow pinch that’s been really tough,” he said.
“It’s just down to the necessities in terms of the things we can’t not pay, which is keeping up our rent, and putting food on the table.”
Mr Clarke and his wife Melany, who has also applied for early access to her super, aim to spend as little of the super money as possible.
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“We won’t be going on fancy trips or do anything crazy with the money it’s survival money,” he said.
“I’m concerned that the long-term effects are going to be there, but the plan is to pay it back as quickly as possible once we get back on our feet.
“I think ultimately it’s about having options right now and having that money available will help us get through and survive it.”
He hopes he will not have to apply again next year.
“I’d like to say, no,” he said.
“[But] I don’t think the economy is going to bounce back that quickly.
“Fingers crossed, It’d be nice not to touch it.”
‘I don’t have a job, I can’t pay the rent’
Michaela Menhartova hopes to use money from her super to study for “a more secure career”.(ABC News: Aaron Hollett)
Michaela Menhartova has also applied for early access to her super nest egg. Her hours as a casual English teacher have been slashed due to the pandemic.
“In one day, I don’t have to go to work anymore. I’m in a share house, I don’t have a job, I can’t pay rent. I’ve got to move back home,” Ms Menhartova said.
“So I’ve moved back to my parents’ home, where I haven’t lived for at least 10 years. So that’s a big shock to my lifestyle.”
She is hoping the money from her super will make it possible to study for a more secure career.
“I’ve been thinking about a career change and when I heard about being able to take out your super I thought this would be a good way to start, go back to university and use this super to pay for my studies.”
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Early withdrawals could change industry
Mark Carnegie worries that super funds will start to change their behaviour.(ABC News: John Donegan)
Venture Capitalist Mark Carnegie is concerned super funds will change their behaviour to take into account people withdrawing money earlier than expected.
He fears funds will move to allocating money towards liquid assets, like cash or bonds, over long term equities.
Put simply, those safer assets will mean the returns to investors over time will go down materially.
“Doing it once and establishing the precedent is certainly going to lead to this reallocation, which is going to hurt our children and grandchildren,” Mr Carnegie said.
“It is going to mean that liquidity levels in growth asset portfolios end up being way higher than they were before.”
‘It’s all about a choice’
Senator Jane Hume, Assistant Minister for Superannuation, said the Government’s super withdrawal scheme had been “targeted, proportionate and temporary”.
“We wouldn’t expect that there would be any ongoing access to early release of superannuation,” she told 7.30.
“For the 832,000 Australians that have already accessed their superannuation throughout the early release program, you have to understand that there is a case of financial hardship, a story of financial hardship behind each one of those 832,000 cases.”
After the interview, Senator Hume contacted 7.30 to say the number of Australians approved to access their super had risen to 900,555.
“And what [is] the alternative for those people? They may have had to have sold their car, or taken out a credit card debt, or gone to a payday lender,” she said.
“It’s all about a choice. It’s all about an option for individuals, and only individuals can make up their mind as to whether this is the best decision for them.”
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