So with so many changes happening in the world at the moment, we thought we would take the time to answer some of the common questions we are getting at the moment. Please note that the information below is general in nature and does not take in to account your personal circumstances. Please do not hesitate in contacting us if you would like to review your situation or have any questions.
I’ve lost my job, what should I do?
Contact Centrelink as they will be able to assess your situation and determine what payments you may be eligible to receive. The government announced the following measures:
Federal government measures
- $750 payment from the end of March to recipients of Age pension, Family Tax Benefit, Youth Allowance, Newstart, Austudy, Disability Support, parenting and carer payments.
- Services Australia offering Major Personal Crisis exemption of 14 days for those who cannot meet current income-support obligations due to required isolation.
- Extra payments of $550 per fortnight over the next six months for new and existing recipients of benefits such as JobSeeker, Youth Allowance, Parenting Payments, Farm Household Allowances and Special Benefits, on top of existing payments.
- An extra $750 payment to social security, veteran income support recipients and eligible concession card holders, provided from July.
- Individuals in hardship able to access $10,000 of their superannuation in 2019-20 and $10,000 in 2020-21.
Source: The Sydney Morning Herald website, What to do if you’ve lost your job due to Coronavirus
I saw on the news that I can access $20,000 of my super, is this true?
The short answer is that you can get access to $20,000 of you super but there are many positives and negatives to doing so. Firstly, lets look at what the rules around accessing your super, it’s available to the following people:
1. Unemployed; or
2. Are eligible for a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
3. On or after 1 January 2020:
– You were made redundant; or
– Your working hours were reduced by 20% or more; or
– If you are a sole trader – your business was suspended or there was a reduction in your income of 20% or more (there’s currently no details on how you prove this but we’re expecting a P & L statement comparing the Jul – Dec 2019 turnover to turnover from 1 Jan 2020)
Both SMSF and non-SMSF members have to apply to the ATO through MyGov to be assessed for eligibility. We’re told applications will be available from mid-April but hopefully it’s sooner.
If successful, the ATO will direct superfunds (non-SMSFs) to make payments to members. They say there will be a different process for SMSFs but we’re yet to get details.
The payments will be tax free and up to $10,000 before 30 June 2020. People can also apply for another payment of up to $10,000 tax free after 1 July 2020.
So lets say you qualify to access your super, the next question is should you?
Obviously this is a personal decision for you and should be based on your personal circumstances but from a financial perspective there are a few things which need to be considered. Currently the markets are down so making additional withdrawals from super will crystallize the losses that superannuation is experiencing. Any withdrawals now will have a big impact on your retirement savings, the following is taken from The Australian and illustrates the impact of taking funds from superannuation early:
Source: The Australian, Coronavirus: It’s not whether you can access super but if you should, James Kirby, Viewed 30th March 2020 <https://www.theaustralian.com.au/inquirer/coronavirus-losses-are-not-so-super/news-story/9c566715f6e4c5da3ea2165e2fc2a46c>
As you can see from the illustration, the impact of a 25 year old taking the $20,000 from their super ($10,000 now and $10,000 after 1st July) will result in $132,o00 less at age 67 or $58,000 in today’s dollars. The main reason for this large impact is compound returns and the fact that $20,000 will no longer receive 40 years of returns.
However, its a personal decision based on your goals and objectives.
Financial Markets and Investments
The markets are right down at the moment, should I change my investment options?
The markets are experiencing a lot of volatility at the moment so we are receiving a lot of calls about super and investments. The main thing to remember about the market movements is that, generally, we take a long term view on investments and therefore do the market movements result in a strategy change for you? There are a lot of articles available which go through the experts opinions on the markets:
What coronavirus has done to your super — and why you shouldn’t panic on ABC News Website
Don’t panic: super is a long-term game, experts say on The Sydney Morning Herald Website
Don’t panic, now could be the time to make some money in superannuation on The New Daily Website
One of the main arguments we get when people are looking to change investment options is, if we change options now I can change back when the markets start to pick up again. Unfortunately, this strategy is fraught with danger and its very rare that we see this strategy pay off. One of the main reasons this seldom works is that you need to be able to pick the markets and when the market moves, it moves very quickly, so you often miss the majority of the gains.
However, it can be very hard to watch your balance fluctuate and we are available to have a chat about it if you have any queries.
I’ve got some spare funds, should I invest in the share market at the moment?
Investing at the moment may mean that you can get some very cheap shares as the market is down at the moment. Its important to remember that investing is a long term strategy and whilst the markets are down at the moment its uncertain how long the markets will take to come back. However, any investment you make should be in line with your overall strategy, goals and objectives.
Am I covered by my income protection if I can’t work due to the Coronavirus?
This depends on the a few factors, firstly, if you are made redundant or lose your job because of the economic downturn in the markets, you are not able to claim on Income Protection. Income Protection will only cover you if sickness or illness prevents you from working. However, if you are infected by the Coronavirus and this prevents you from working then you will be covered after the nominated waiting period and until you are fit and healthy enough to return to work. There have been some suggestions of a “pandemic exclusion” with some insurers, however, we have spoken to a number of insurance providers and have not come across one insurer where this is the case.
Can I put my premiums on hold while I recover financially?
Like all industries there have been a significant impact on the insurance industry and they are working on solutions to help clients whilst they get back on their feet. Some of the insurers are still to finalise what they are able to offer clients but they are working on it. One thing to remember though is that if the insurer is able to offer a premium freeze this will generally mean that you are also not covered by the insurance for the period your insurance is on hold. There may be other options that are more align to your goals and objectives than putting the cover on hold. Please don’t hesitate in contacting us if you would like to discuss this.
Can I still get insurance?
Yes, the insurers are asking a few more questions to assess the Coronavirus risk. If the risk is high, then there may be exclusions, loadings or no cover available. Otherwise, getting insurance is still possible.
Can I put my mortgage payments on hold while I recover financially?
Similar to the answers for insurance, it appears that many banks are offering clients the ability to put their mortgage payments on hold whilst they are recovering financially. However, its important to check the fine print on this, as generally, all this will do will mean that the payments you miss will be added to the loan total (repayments will be capitalised on to the loan). This then means that your repayments will go up when you return to repaying the mortgage. The increase will only be slightly though as you will repay the amount back over the life of the loan (generally 30 years minus how long you have had the loan). The resulting overall interest could work out to be quiet significant.
Interest rates are at some of the lowest levels Australia has ever seen, should I refinance?
There are some very low interest rates at the moment and if you have not reviewed your mortgage in the last couple of years you may be missing out. Please remember though that your ability to refinance depends on a number of factors, including equity in the home / property and income / serviceability. If you are able to refinance you may be able save some money.
Other factors to consider when refinancing is that its not all about the interest rate. Its common to be able to reduce your repayments but this may result in the over interest or term of the loan to increase. For example, if you start with a 30 year loan and have paid down your mortgage for the past 10 years. If you refinance to a 30 year loan, more than likely your repayments will go down, however, you will pay the loan back for an additional 10 years and the total interest will potentially be higher based on the longer time frame.
However, the first step is to review your mortgage and finance because it may result in some savings. Please don’t hesitate in contacting us if you would like to discuss this.
We are available over email, the phone and via Zoom meetings to review and discuss your financial situation. Please don’t hesitate in touching base if you have any queries.
The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.