How to rebuild your super after a COVID-19 withdrawal

The Federal Government allowed Australians affected by COVID-19 to access some of their superannuation during much of 2020.

For many people, the early release of super scheme was a lifesaver, with the money accessed from retirement savings helping provide additional support at a time of economic uncertainty.

The scheme is now closed to new applications but over the lifetime of the scheme, Australians made 4.8 million applications to withdraw a total of $35.9 billion from super funds, at an average payment per person of $7,643¹.

If you’re one of these Australians, you might be wondering about the long-term impact your super withdrawal could have on the quality of your retirement.

The good news is there’s plenty you can do to help make sure you can still enjoy the kind of retirement you’ve always dreamed of.

How much super do you need?

According to the ASFA Retirement Standard, to be able to live a comfortable life in retirement, doing things such as eating out at restaurants, enjoying leisure activities and traveling occasionally in Australia and overseas (once restrictions ease), it’s estimated you’ll need a super lump sum of $545,000 if you’re single, or $640,000 between you if you’re in a couple².

^{All figures in today's dollars using 2.75% AWE as a deflator and an assumed investment earning rate of 6 per cent.}

These figures assume you’ll also receive a part age pension from the government and that you own your own home.

What is the impact of a super withdrawal?

By withdrawing part of your super early, you don’t just lose the amount you’ve withdrawn from your retirement savings, you also lose the opportunity to earn an investment return (or make additional money) on that money. As super is a long-term investment, the amount you stand to forfeit could be larger, the younger you are.

If you’re interested in getting an idea around what possible impacts a withdrawal now may have down the line, you can check out the MoneySmart’s Superannuation calculator.

Unfortunately, if left alone this shortfall won’t take care of itself, but there are some things you can do to help rebuild your retirement savings.

Ways to help rebuild your super

As a result of the economic shutdown you may have been forced to cut back on your spending and live a little more frugally. Rather than returning immediately to your former lifestyle as your income recovers, try to maintain some of the measures you adopted to save, and that might include putting extra money into your super.

There are a number of ways you can make super contributions in addition to those your employer makes on your behalf.

•  Concessional (before-tax) contributions

These can take the form of either salary sacrifice contributions, which are voluntary contributions you ask your employer to pay out of your before-tax income, or tax-deductible personal contributions, which are contributions you make using after-tax dollars (such as when you transfer funds from your bank account into your super), then claim a tax deduction.

•  Non-concessional (after-tax) contributions

This refers to money you put into your super fund using after-tax dollars and don’t claim a tax deduction on. Some people choose to make non-concessional contributions when they’ve reached their yearly concessional contribution cap.

•  Spouse contributions

If your spouse is in a better financial position than you, they may be able to help rebuild your super through spouse contributions, provided you earn less than $40,000 per year. Subject to eligibility rules, they may also benefit from a tax-offset on the after-tax contributions they make into your super account.

•  Government assistance

If you’re a low-to-middle-income earner and make an after-tax contribution to your super, which you don’t claim a tax deduction on, you might be eligible for a government co-contribution of up to $500 into your super.

The government also offers another type of super assistance known as the low income super tax offset (LISTO). If you earn $37,000 or less a year, and receive concessional super contributions, the government may refund the tax you paid on those contributions back into your super account, up to a maximum of $500 per year. This will happen automatically at tax time if you qualify.

•  Find and consolidate your super

As at 30 June 2019, there was $20.8 billion in lost and unclaimed super across Australia according to the ATO³. If you think you might have some super floating around in the system from a previous employer, it’s worth doing a super search to locate it.

And if you find any lost or unclaimed super, you might consider consolidating all your super into one account to make it easier to manage and keep track of, and avoid paying multiple fees and charges. Before deciding which super fund to consolidate into, consider all the features and benefits of your super funds, whether any exit or withdrawal fees apply and any insurance cover you may have, when making your decision.

We’re here to help

If you’d like to know how we can support you in these challenging times, you can check out our COVID-19 Support Hub for financial insights, tips and help.

You might also like to speak to a financial adviser. If you don’t have an adviser, you can contact us on 131 267 or find an adviser online.

¹APRA, COVID-19 Early Release Scheme – Issue 35
²ASFA, Retirement Standard, September 2020
³ATO, Lost and unclaimed super by postcode