If you were one of the millions of Aussies who dipped into their superannuation during the COVID-19 pandemic, you may be wondering when or how to replenish your retirement pot.
Data from the Australian Taxation Office shows it approved the early release of superannuation for 3.05 million people in 2020, totalling $37.8 billion, as Australians flocked to take up the government's emergency support measure allowing them to withdraw up to $20,000.
So do you need to pay back your superannuation? And when is a good time to start?
How much could you be losing out on?
People financially impacted by COVID-19 were able to apply to the government to access their superannuation between April 20, 2020 and December 31, 2020.
The COVID-19 early release of super program did not require people to pay back the withdrawal amount.
According to the ATO, eligibility for early access included a reduction in working hours, unemployment, or being made redundant.
But a survey by the Australian Institute of Family Studies shows some reported using the funds for things like home renovations, debt repayments or purchasing a motor vehicle.
Financial literacy advocate and accountant, Ketvi Roopnarain says allowing access to super via 'self-testing' meant people who may not necessarily had experienced emergencies, suddenly had access to their funds.
"And [some] withdrew the maximum without necessarily understanding the long-term implications to their retirement nest egg.
"The three largest cohorts of applicants were: [those] in their 30s (33 per cent), followed by 25 per cent in their 40s and 22 per cent in their 20s."
Let's say you withdrew the maximum $20,000 in April 2020, Ms Roopnarain says this is how it could impact your super long-term:
- If your fund's balanced option returned 18 per cent in the following year (the 2021 average): Missed return: $20,000 x 0.18 = $3,600
- Over 30 years at an average 7 per cent annual return: (SuperGuide says the average super return for the next 30 years is estimated to be around 6.5 per cent — 7 per cent per annum) $20,000 would grow to approximately $152,000
- Your total loss: $152,000 — $20,000 = $132,000
Rebuilding your retirement funds
Matt Grudnoff says the hardest working dollar in your super account was the first dollar you put in.
"That $1 basically has interest or, investment returns on it for the longest period.
"So if you take money out, particularly early on, then that's going to have the largest impact."
The senior economist says putting money back into super, particularly if your balance is small because you've drawn it down could be "very beneficial".
And the sooner you can help your retirement pot grow, the more time it will have to recover, says Ms Roopnarain.
"Even small additional contributions have the potential to boost your retirement savings, thanks to the 15 per cent tax rate on super contributions versus a marginal tax rate of at least 30 per cent if you earn above $45k, potential investment earnings, and compounding growth over the long term.
"They say the best time to plant a mango tree was 20 years ago, the next best time, is today."
If you withdrew money from your super fund through the COVID-19 early release of super program, you can opt to rebuild your super by making personal super contributions until June 30, 2030.
Through the federal government's COVID-19 re-contributions scheme, these contributions are excluded from the non-concessional contributions cap (the maximum amount of after-tax contributions you can make to your super each year without it being subject to extra tax).
One thing to be aware of is that you can't claim a tax deduction for putting this money back in.
How to start making payments
You'll need to fill in the ATO's COVID-19 re-contribution form and provide it to your super fund before or at the time you make your contribution.
"You can put back what you took out, but not more [within the re-contribution scheme], " Ms Roopnarain says.
She says if you started this month, for example, you could contribute small amounts over 63 months, until June 2030 to top up your superannuation.
"Have a play with the Moneysmart superannuation calculator to determine what you might be able to contribute and how it might increase your end balance," she says.
"While the early release scheme provided emergency short-term relief during the pandemic, it's essential to view your superannuation as a long-term investment for your future financial security."
She also recommends getting in touch with your super fund to discuss re-contribution options.
A note on financial advice
Mr Grudnoff recommends that as well as getting general information, like this article, people seek their own financial advice.
"Financial advice from a professional is an important thing in this kind of situation.
"Seek that out … specifically for your circumstances."
Can you still access superannuation early?
While the pandemic scheme is closed, you can still apply for early release of superannuation for a variety of reasons.
These include compassionate grounds, medical reasons, temporary or permanent incapacity, as well as severe financial hardship.
The maximum amount that can be withdrawn for financial hardship is $10,000.
But our experts say you will need to prove those circumstances to your superannuation fund.
"There's hardship provisions, basically if you have lost your job, if you are going through some other kind of deep financial hardship you can apply and then you're assessed," Mr Grudnoff says.
"If you're assessed to be in financial hardship you can withdraw some of your super out in order to use it to get through that.
"The difference during the pandemic was you just had to say 'I want to withdraw my super' and you could do it."
This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.
