Should you access your superannuation early to pay your rent or mortgage?

A growing number of Australians appear to be tapping into their retirement nest egg to keep a roof over their head.

Many were already grappling with high living costs well before the COVID-19 pandemic came along and stripped one million jobs from the economy this year.

Now, it’s even tougher to cover the cost of housing, with evidence suggesting superannuation is being used to cover mortgage and rental payments.

Real estate agents were rapped over the knuckles by the industry watchdog after some had been caught advising tenants to withdraw super early to pay overdue rent. This was deemed to constitute unlicensed financial advice.

But some households feel they have no other choice.

The early release of super is a temporary measure announced by the government to help jobless Australians ride out the financial impact of the COVID-19 crisis. It allows individuals to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21.

The news prompted a rush of applications from Australians. Since April, 1.4 million Australians have swiped $10.6 billion from their fund, with withdrawals averaging $7510.

The hardest hit were young people. ATO data provided to the senate committee overseeing the COVID response revealed more than 50 per cent of applicants were aged 35 and under, and more than a third were younger than 30. More than half withdrew the maximum possible of $10,000.

Quick cash

The funds can be used for a mortgage payment if it prevents you from losing your home, and the ATO usually releases the funds within three days.

The government is expecting up to $27 billion to be withdrawn this year. It might sound like a lot, but it’s less than 1 per cent of the $3 trillion collectively held in super funds.

While there’s been some suggestions that the $20,000 could be put towards a deposit for a property, the fact is that you have to be unemployed, lost your job or had your hours cut to be eligible for the scheme. Of course, securing a home loan without stable employment is very difficult.

A last resort

Experts warn that the early release of super can cause a big dent in the size of your nest egg by the time you reach retirement age.

Ethical super fund Future Super co-founder Kirstin Hunter said superannuation was never intended to be a national relief fund.

“Allowing Australians to access their super early for rental and mortgage purposes is irresponsible to get through these hard times,” she says.

“It’s also forcing Australia’s most vulnerable to choose between putting food on the table or a liveable future. That’s not a choice anyone should have to make.”

Home owners and tenants should only access super if there are no alternatives. If you plan to withdraw some of your super early, be aware that it’s money that won’t be invested to fund your retirement.

Association of Superannuation Funds of Australia chief executive Dr Martin Fahy urged Australians to prioritise federal government assistance and to only access super as an “absolute last resort”.

“Drawing down your balance now will have a significant impact on your long-term savings,” Dr Fahy says.

ASFA estimates that a person aged 30 who withdraws the full $20,000 from their superannuation would have around $60,000 less when they reach retirement. The industry watchdog warns that this is a conservative estimate, and that you may lose more or less depending on your personal circumstances.

You can calculate the impact on your retirement savings here.

Look for alternatives

The alternative is to approach your bank. All banks and lenders have financial hardship teams, and you may be able to change the terms of your loan or temporarily reduce your repayments for the rest of this year.

The big banks are letting borrowers hit pause on their mortgage payments, assuring borrowers that they won’t lose their home if they can’t repay their mortgage for the rest of the year.

But whether this means financial pain down the road is yet to be seen, with some banks capitalising paused repayments into the rest of the loan down the track.

The good news is that once finances are back on track, Australians can top up their super fund with additional contributions on top of the 9.5 per cent super guarantee paid by your employer.

• If you’re struggling, check out the National Debt Hotline’s COVID-19 survival guide.