[ad_1]
When single mother-of-three Rachel left her husband more than 20 years ago, she had two young children and was pregnant with her third.
“I was renting and we moved with nothing,” Rachel, who asked not to be last name, told 9news.com.au.
With no job and no savings, the only real asset Rachel had was $30,000 in a retirement fund.
In desperation, Rachel applied to her pension company to withdraw the maximum $10,000 allowed in financial hardship.
“It was used to buy a refrigerator and furniture and everything,” she said.
To meet the hardship provision, a person must receive Centrelink unemployment benefits for 26 consecutive weeks or more.
Money withdrawn from super is taxed at 25 per cent, but people with incomes in the tax-free threshold get the tax back after filing their tax return.
Rachel said she felt she had no choice but to make this first withdrawal from her superannuation.
The situation is different the second and third time she applies for the release of funds from her superannuation.
However, Rachel said she still thinks it’s important right now.
When her two youngest children were in high school, Rachel took out $10,000 for each of them so they could go on a school trip to Japan.
The applications were made two years apart when both children were 16 years old.
“They were learning Japanese and I wanted to give them a good education. I took it so they could go to Japan,” Rachel said.
“I couldn’t help sending them. I just thought they have to go, it’s part of their education.
“None of them are interested in Japanese now, and they don’t care.”
The withdrawals left Rachel with no money at all in her retirement fund, making her feel like it was “the worst thing I ever did.”
“I wish I hadn’t because now I’m facing medical issues and housing issues and I don’t have anything to fall back on,” Rachel said.
Rachel, now 51, made her last withdrawal from super around seven years ago.
If Rachel had kept the entire $30,000 in her retirement account, the amount would have tripled to $109,800 by the time she turns 67, at 5 percent compound interest.
Rachel said her experience is a warning to others.
“I tell everyone I know, ‘Don’t take it out because you’re going to need it when you’re old.’
Rachel said that while there were checks to make sure people had received Centrelink benefits for the required period of time to access their super, there was almost no checking of what the money was actually spent on.
While many people were really struggling, some were not, she said.
“I think some Centrelink people think it’s quick money and they can buy a new TV,” she said.
Figures from pensions industry regulator the Australian Prudential Regulation Authority (APRA) show that an early release of distressed superannuation funds was granted to 77,000 accounts in the last financial year to June 2023.
Low unemployment means these numbers have remained relatively stable.
However, statistics released in March by the Australian Taxation Office (ATO) show the number of people accessing their super early for compassionate reasons is increasing.
Pension funds can be accessed on compassionate grounds through the ATO to get medical treatment, accommodate a disability, meet palliative care needs, funeral costs or prevent your home from being repossessed.
There is no limit on the amount that can be withdrawn from a person’s pension for compassionate reasons.
In the 2022-23 financial year, the tax office accepted 41,800 applications for compassionate access to super.
This is a growth of 21.5 percent compared to the previous financial year.
In the last financial year, there was a record number of applications approved for medical treatment, including a 67% increase for dental treatment.
The figures also show a 28 per cent jump in the number of people applying for early super release to prevent their home being foreclosed on.
However, a dramatic increase in the number of applications for early access to prevent foreclosure did not lead to more approvals, with the ATO giving the green light to even fewer requests than in the previous financial year.
Financial expert Joel Gibson said it’s no surprise to see a sharp spike in applications from people facing foreclosure.
“We are yet to see the worst of the RBA’s rate hikes on mortgage holders, so I think next year will be even higher,” Gibson said.
Gibson said it was unclear why so few applications were approved in connection with foreclosure, but it was exactly the kind of thing early access to super should be allowed for.
“If people are going to put that money into an appreciating asset, just like a super fund would do, and that keeps a roof over their heads, I think that’s a win-win,” Gibson said.
“A lot of money experts will disagree with me on this and say it’s super sacrosanct.
“But I would say your savings are better invested in the family home than anywhere else – when you retire you can sell that home and downsize, as many do.”
The ATO’s figures for early access to superannuation for compassionate reasons do not include the large number of people who accessed their superannuation under special arrangements during the pandemic.
In the case of the 3 million people who took about $37 billion out of their super during the COVID pandemic, they “probably blew their money”, Gibson said.
Association of Superannuation Funds Australia (ASFA) chief executive Mary Delahunty said people should think very carefully before deciding to get super early access.
“Many Australians are under constant cost of living pressure at the moment. Even in difficult financial circumstances there is a need to balance the early withdrawal of superannuation with the long-term superannuation benefits that super provides,” said Delahunty.
“ASFA research shows that people who withdraw their superannuation early tend to pay a high price in terms of the cost of their retirement savings.”
[ad_2]
