The ability to withdraw a portion of your super, as announced by the Federal Government* this year, has been a godsend for some families struggling against the financial impacts brought about by COVID-19.
But is it in fact a Trojan Horse for your future financial planning and investments?
According to the Financial Review**, early withdrawals of superannuation have already hit Treasury's initial forecast of $27 billion, with another three months still left to claim.
For many fortunate enough to retain their employment status - albeit at a reduced rate, and therefore justifiably considered candidates for withdrawing their super to supplement an income - the decision offers a tantalising prospect.
You may be thinking now is a good time to invest money into small renovations on your home, and perhaps believe your super would be more effective contributing towards these improvements than wallowing in your fund.
You may even wish to protect yourself against changes to your future employment by taking out your super and saving it for a rainy day. There is, after all, a window of opportunity for you to access your super that will close in December, 20201 . You may be considering the risk of a reduced income without the ability to access your proverbial security blanket.
These are difficult decisions to make without specialist advice.
The question we'd encourage you do ask yourself is how will your decision now affect your future finance?
We can help with that answer.
At Astute, we're fielding a number of applications from clients who took out their super in the first round and have since decided to purchase a house. Many have done so with the best of intentions and, in a number of cases, have withdrawn their super just to keep the money in their account for a rainy day.
Banks will approve applications based on a number of factors including their merit. Those that include applicants who have not been negatively affected by COVID-19 will be regarded as better loan prospects than those who have.
Your right to voluntarily draw out your super rests on your ability to prove you've been financially affected by the pandemic. As mortgage brokers we've seen that an early release of super can be viewed as a red flag in the assessment loan applications by some lenders.
While each person’s circumstances are different, if you're planning to purchase a house within the next few months using funds drawn from super, here are few points to consider:
· Ensure you complied “at the time” with the ATO Guidelines.
· Be clear in your application and with your broker about the circumstances under which you originally withdrew the funds.
· Demonstrate that you can meet the banks’ lending policies now that your are no longer concerned about financial hardship.
· If you don’t need to the money for your purchase, consider paying it back into your fund – seek guidance from your super fund on how best to do this.
And if you need more advice, feel free to give myself or my team a call.
We’ve even got the expertise of our Financial Adviser Mike Dixon available to discuss future wealth strategies for those who require it.
We're here to navigate your finances for you.
Tony
Information current as at 20th August, 2020
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