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A super catch-up plan

It's a number that can only be described as mindboggling: $400 million a day.

   

That's the total amount of money that has been withdrawn from Australia's retirement savings system under the federal government's special early release measure since it became effective in late April.

From 20 April, individuals financially affected by COVID-19 have been able to apply online through the myGov website to access up to $10,000 from their superannuation account tax-free this financial year.

So far, around 1.1 million Australians have collectively withdrawn close to $12 billion in superannuation – with an average withdrawal amount of about $8,000 according to the Australian Tax Office.

Superannuation funds, particularly the industry funds with large membership bases covering workers in the hard-hit hospitality and retail sectors, have been flooded with withdrawal requests.

The vast bulk of those requests have been from individuals with less than $10,000 in their accounts, with another sizeable proportion of applications coming from people with less than $20,000 in super.

In the context of Australia's total superannuation system, which is managing almost $3 trillion in assets on behalf of members, the amount that has been withdrawn to date represents less than 0.5 per cent.

However, the volume of superannuation money being taken out of the system is climbing day by day.

There is still over a month until the end of this financial year, and then a second tranche of the superannuation withdrawal measure comes into effect. Individuals who have been made redundant, or who have lost 20 per cent or more of their regular income, can access $10,000 of their superannuation from 1 July until 24 September, 2020.

In many cases, applications are likely to come in from the same individuals who withdrew $10,000 of superannuation savings before 30 June.

The cost of early access

As we've detailed in previous articles, the cost of accessing superannuation early primarily comes down to the forsaking of future compound returns.

For someone close to retirement, let's say less than 10 years away, the net returns cost of pulling out savings early won't be as great as for a younger person.

Our Investment Strategy Group recently did some calculations based on a balanced multi-asset managed fund containing a mix of equities and fixed income, with an average net return of 6 per cent per annum.

For an investor who has 20 years until retirement, the value of a $10,000 withdrawal is estimated to be worth $32,100 at retirement. Over the course of 40 years, the impact of the $10,000 withdrawal on the retirement savings climbs to $102,900, while a $20,000 withdrawal means an investor would have $205,700 less at their disposal.

A way back

It's still very early days, but there's already discussion in financial circles around the need to entice individuals in the post COVID-19 environment – especially those who have withdrawn superannuation – to replenish their retirement savings incrementally over time through additional concessional contributions (taxed at 15 per cent).

This discussion is being framed into the wider debate around the ultimate purpose of superannuation, which is enshrined in the Superannuation (Objective) Bill 2016 as "to provide income in retirement to substitute or supplement the Age Pension".

Last September the federal treasurer announced an independent review into Australia's retirement income system, with the final report from that Retirement Income Review due to be provided to the government by June.

The longer-term consideration for individuals who have needed to withdraw superannuation because of the COVID-19 crisis is perhaps around developing a savings plan for further down the track, once they are in a more stable employment position.

Which could involve allocating small amounts of earnings back into superannuation over a long period in addition to the compulsory employer-paid Superannuation Guarantee levy contributions.

There are also much more generous rules in place now around making larger superannuation contribution catch-ups, well beyond the standard annual limitations.

In our recent article Do your investment goals stack up?, we pointed to the importance of having a financial plan and the need to reassess one's goals when unforeseen events occur, such as those currently being experienced.

In the current environment, the need for having a long-term financial plan that incorporates having adequate retirement savings in place is arguably more than important than ever.

 

Tony Kaye
Personal Finance Writer
26 May 2020
vanguardinvestments.com.au

 


David Forrest Download David's Adviser Profile

David Forrest

Director
BEc (Acc), MBA, CPA, FFin

David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.

David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.

Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.

David maintains a strong personalised client service focus, providing tailored solutions for clients.

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David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846

Michelle Forrest

Michelle Forrest

Business Finance Manager
B Bus (Acc), CPA

Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.

Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.

With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.

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Darren Chalk Download Darren's Adviser Profile

Darren Chalk

Financial Adviser
B Com, Dip FP

Darren joins the Integrity team as a strong technical specialist with almost 20 years’ in the Financial Services industry. He has extensive experience advising clients on how to build and protect wealth, prepare for retirement and retire comfortably.

Commencing with advising clients on direct equities for over 10 years at Baker Young, Tolhurst Noall, and ABN AMRO Morgans, his career expanded to providing holistic client advice, having operated his own financial services licence and company. Most recently having worked for a 'Big 4' bank, he has welcomed the more personalised ‘client first’ approach that is evident at Integrity Financial Advisory.

With a deep understanding of investment markets, he is appropriately qualified and authorised to provide direct share advice, as well as superannuation/SMSF advice, encompassing both investments and insurance.

Meticulous in his approach, he aims to deliver quality outcomes for clients by understanding their financial situation and needs before providing advice which is central to our advice process. Darren supports David in tailoring solutions for all client financial advice needs.

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Darren Chalk is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846

Natasha Bartlett

Natasha Bartlett

Client Service Manager

Natasha commenced working in the financial services industry in June 2008 and is a new addition to the Integrity team. During the past 11 years, she worked closely with advisers providing administration support in a share broking and financial advice business.

Having successfully completed her RG146 accreditation in securities and managed investments and continued her studies to complete her competency in Superannuation, Natasha can ably assist with all aspects of fixed interest, cash management, portfolio administration, direct shares and client advice implementation.

Natasha takes time to ensure she understands our client’s financial goals and needs and believes in creating, preserving and utilising wealth through effective financial management as a key objective in helping clients.

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Kelly Collins

Kelly Collins

Client Service Manager

Kelly has worked in the Financial Services Industry for over 10 years and has supported David since 2013. Kelly’s primary background is in customer service and administration.

On starting in the industry, Kelly initially focused on direct shares, stockbroking administration and client liaison. Since moving to the Client Service Manager role, Kelly has developed skills encompassing all aspects of financial planning including client advice implementation and term deposit management.

Kelly’s experience in the direct share environment, especially management of estates, provides a key part of the direct equity expertise in Integrity’s Client Service Team.

Returning from Parental Leave following the arrival of her second child, Kelly has developed further honed multi-tasking skills after juggling the demands of a growing family.

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Jasmine Smith

Jasmine Smith

Client Service Manager

Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.

Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.

Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.

Jasmine has gained her Certificate III in Financial Services qualification.

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Merrilyn Smith

Merrilyn Smith

Client Service Manager

Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.

Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.

Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.

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