Allowing early access to superannuation savings is one of the big changes introduced by the government to help Australians suffering financial hardship as a result of Covid-19.
Under the new rules, eligible fund members are able to make an emergency withdrawal of $10,000 in 2019-20 and again in 2020-21 to supplement lost income – which will no doubt prove a boon to Aussies who’ve lost their jobs as a result of the coronavirus.
But super funds and financial experts are warning that such emergency access is likely to have a long-term financial impact for Aussies who use it, so caution that it should be only a last resort in serious hardship situations. And now, to head off what’s feared could be an influx of ill-considered withdrawals from super funds, the Australian Securities and Investments Commission (ASIC) has relaxed the rules on financial advice so super savers can more easily get guidance before making an emergency super drawdown.
According to rules set out by the Australian Taxation Office (ATO), eligible super fund members will be able to apply to access up to $10,000 of their superannuation savings before July 1, 2020, and another $10,000 between July 1 and September 24. To qualify, members must have either lost their job, be unemployed, be a sole trader who has seen a reduction in turnover, be eligible for certain government payments or have their working hours reduced.
The application process opens on April 20 and the only way to apply for an emergency drawdown is through an online myGov account – super funds themselves and other third parties cannot accept applications. More information can be found at the ATO’s Covid-19 section here.
While the ATO’s rules don’t require a super fund member to obtain professional financial advice before making a withdrawal, ASIC recommends accessing all available government assistance payments before drawing down emergency funds, as well as contacting lenders to attempt to renegotiate repayment terms on any pressing loans.
The financial watchdog also recommends using its super calculator to work out how much a $10,000 or $20,000 withdrawal will impact the total super balance available at retirement.
ASIC’s plan for easier, cheaper access to financial advice means that registered tax agents the ability to give advice to exisiting clients without requiring an Australian financial services license.
Also, normally financial advice clients must receive a statement of advice (SOA) from their financial adviser that sets out the details of the advice as well as the required payment for advice. Now, however, ASIC has waived the need for an SOA when providing advice about early access to super and has instead replaced it with record of advice (ROA), which is a shorter, simpler document.
Financial advisers can provide ROAs to exisiting clients, and ASIC has capped the fees that can be charged for such advice at $300. Additionally, to ensure that advisers, registered tax agents and superannuation trustees are acting in the best interests of their clients, ASIC will be conducting surveillance activities that will monitor the advice provided.
It’s important to note that many super funds are also providing free advice to members via their own websites, and free financial advice is available to all Australians via the government’s Financial Information Service.
Another reason ASIC is keen to see super fund members seek advice before withdrawing from their super is the proliferation of scammers keen to cash in on the opportunity to bleed unsuspecting Australians of their savings.
Already, super funds First Super has warned members about new scams popping up in which fraudsters pretend to be agents of super funds or the like, with an offer to help unsuspecting fund members through the application process in return for a fee. The scam allows the fraudster to get access to important personal financial information, such as super fund members’ membership numbers and passwords to online accounts.
First Super CEO Bill Watson advises anyone who encounters such an offer to be careful to check its veracity. ASIC’s new rules on financial advice don’t permit financial advisers to approach potential customers – customers must intentionally seek their advice, so a legitimate adviser will not cold-call, email or text potential customers.
“If you are worried that a phone call, email, or text message concerning your super is a scam, you should hang up or delete the message,” Watson says. “You can easily contact your super fund afterwards to check if a call or email was genuine.”
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial situation, objectives or needs. That means it’s not financial product advice and shouldn’t be relied upon as if it is. Before making a financial decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services advice.