Early access to super: what does it really mean?

protecting your supre

Recently, the Government introduced a new compassionate early release measure that allows individuals to access up to $10,000 from their super during the 2019-20 financial year, and a further $10,000 during the 2020-21 financial year. 

When withdrawing any amount of money from your super, it's important to understand the effect it may have on your retirement prospects. This is because you are potentially missing out on the benefits of compound earnings - particularly when this money is release many years before you retire.

Compound earnings are the earnings you get on the money you initially deposit and the earnings you've already made, For example, if you have an accumulation balance, you'll earn returns on this initial balance AND on the returns you have already made up until that point.  

What does this mean?

Case study 1 

Callum is aged 32 and elects to withdraw $20,000 under the new compassionate early release measure. Fast forward 35 years and Callum, aged 67 retires from the workforce. Assuming an earnings rate of 5%, Callum would have $126,708 less in his accumulation account.

Figures via ASIC's MoneySmart calculator, have not assumed any taxes or inflation rate. This is an example only and might not reflect your personal financial situation.


Case study 2^

Bob and Susie are both aged 30 and each have $35,000 in their super nest egg. They have both experienced financial hardship as a result of the financial impact of COVID-19, and are now eligible to access their super under the new compassionate early release measures.

Bob decides to take $10,000 out of his super. Reducing his super balance to $25,000. As a result his balance at retirement (age 67) is $327,616.

Susie decides to leave her $35,000 in super invested, Her balance at retirement (age 67) is $350,019.

By leaving her super invested, Susie will have $22,403 more in retirement than Bob. 

Assumptions: Both on an income of $50,000; Figures calculated via Lifetime Supermodeller calculator. Earnings rate of 6% (after fees and taxes), 3.2% inflation.

What impact will this have on your compound earnings?

The figures below provide an estimate of the earnings you could miss out on by withdrawing $10,000 from your super at different ages. For example, if a member aged 40 decides to withdraw $10,000 from their super, they may miss out on $28,466 in compound earnings when they retire at age 67.  

Age at withdrawal of $10,000 Total compound earnings lost at retirement (age 67)
30 $53,354
35 $39,366
40 $28,466
45 $19,973
50 $13,355
55 $8,198

Assumes 5.12% earning rate, to age 67, have not assumed any tax, inflation, and are indicative figures only. Figures via ASIC's MoneySmart calculator. This is an example only and might not reflect your personal financial situation.

Locking in losses in falling markets

Stock Markets

It's important to remember that accessing your super now will lock in recent investment losses, and might mean that your super misses out on the gains. Particularly for younger members whose super may have decades to recover. 

Our message at this time is to stay focused on the long-term.

Super is a long-term investment, so while investment markets can be unpredictable over the shorter term, they typically recover over the longer term. If you're approaching retirement, or are retired, it's still important to stay focused on your long-term investment strategy and consider all your options before making any significant changes. 

"Our members' retirement prospects remain our priority. While we understand that during these difficult times members may need to access their super, we advise that doing so in times of market volatility, be seen as a last resort" Mark Puli, CEO, ESSSuper.

What are your other options?

The Australian Government is providing a range of financial assistance to impacted Australians. This assistance includes income support payments and payments to support households. For more information please visit the Treasury's web page.

The Department of Social Services is also supporting the individuals and families affected by Corona virus through a range of measures. Visit the Minister for Families and Social Services' web page for further information.

We're here to help

We will continue to monitor the situation as it unfolds and will provide regular updates on our website. For the latest news and more information on our investment response to COVID-19, please click here.


^The purpose of the examples above are to show you the effect withdrawing $10,000 and $20,000 from your super on compassionate grounds during the 2020 and 2021 financial years.
ESSSuper has made reasonable efforts to ensure the accuracy of the information provided. The information and estimates provided are general and should not be relied upon as a true representation of any actual superannuation entitlements or benefits from any particular scheme or relied on as a basis upon which to alter your financial situation without advice from a professional. You should assess your own financial situation and consult a financial adviser before you make any changes to your financial affairs.

Investment returns cannot be guaranteed as investment markets are volatile. As a consequence, returns can be positive or negative. Past investment performance is not a reliable indicator of future performance.

Benefits in ESSuper's Accumulation Plan, Income Streams and Beneficiary Account products are not guaranteed or underwritten by the Victorian Government or ESSSuper, and ESSSuper does not come under the jurisdiction of the Australian Financial Complaints Authority.

Assumptions used in the Lifetime Supermodeller calculator retirement projections

Inflation: Wage inflation of 3.2%pa has been assumed by default. This rate has also been used when discounting future amounts to current values.

Personal income: Salaries are assumed to increase in line with wage inflation. In any future periods where the user has a period of part-time employment, their salary is reduced pro-rata.

Tax calculation allow for Personal Income Tax rates, the Medicare Levy, the Low Income Tax Offset, Debt Levy and the Senior Australian Tax Offset. Threshold and Offset amounts in the first year are based on current rates. Thereafter they are indexed in line with wage inflation.

Employer contributions: The assumed rate of contribution is 9.5%. Superannuation guarantee contributions are subject to the maximum contribution base, which is currently $55,270 per quarter. This threshold is indexed annually in line with wage inflation.

Related News