Superannuation withdrawals: what you must consider by the woman in charge

The minister in charge of the multi-billion dollar super and financial services industries believes Australians will come out of lock down more engaged with their finances than ever before.

Senator Jane Hume told Really Simple Money in an exclusive interview she expects a revolution in the way Australians think about their super, and she hopes there will be a boom in seeking affordable financial advice.

The Senator is overseeing the controversial withdrawal of two tranches of up to $20,000 from individual super accounts. Super funds, determined to hold on to the cash and fees it earns, has been accused of spreading false figures about the effects on individual.

The numbers are mind boggling. Some 900,000 of us have already applied for $7.5 billion to help meet the bills resulting from the coronavirus pandemic.

But what’s the future cost?

One super industry body says it could be as high as $97,214 in available funds if you retire at 67. The Australian Securities and Investment Commission says that’s wrong – it would actually be $43,200. Big difference – possibly as much as a year of retirement money.

The government’s $300 cap on advice dealing with super withdrawal will spark a new wave of Australians trialling financial advisers, and is a massive opportunity for advisers, battered by trust issues raised by the Hayne Royal Commission, to grow their business.

But Senator Hume insists the decision is for individuals. But she advises we go to the Moneysmart website to try their super calculator, or use the government’s capped $300 fee to get professional advice.

“It’s a question for the individual. It should never be directed by government. There is a trade off here. Money taken out clearly isn’t benefiting from the magic of compounding interest that makes it grow over time.

“But you have to look at the alternatives – for some people it might be more attractive than a high interest loan, credit card debt, a pay day lender or selling the car you need to get to work.

“And there are flexible options to top up your super with catch up contributions.”

“People must realise it’s their money. It’s part of their overall balance sheet and it’s a decision only they can make.”

The Senator is well placed to navigate the minefield of financial services. A mum of three, she has held various senior positions in the industry, working for the National Australia Bank, Rothschild Australia, Deutsche Bank and, immediately prior to her election, as a Senior Policy Advisor at Australian Super.

The finance industry treats the government with some suspicion, so perhaps it’s not surprising some are already complaining the $300 advice fee won’t even cover the cost of filing the paperwork. Which may explain why Senator Hume has opened up the offer to advise on super to qualified tax agents.

She believes the current position has transformed lazy Australians, many of whom rarely looked at their super balance, into zealous information seekers. And that’s a big opportunity for the financial services industry.

And she was happy to back Really Simple Money’s continued campaign to get Australians access to affordable advice, pointing out that new robo advice systems now offer easy and cheap access to information on specific topics.

“I think this is a real opportunity for the financial advice industry, which has been through changes and criticism as part of the Hayne Royal Commission, to demonstrate the value it can provide to ordinary Australians.

“One of the effects of the program is we’ve found many more Australians are engaged with their superannuation. A number who have not looked at their super balances for years are now asking: Where does that $1 in every $10 go? And who is managing it?”

They are much more likely to want a high performing, low fee fund.

“The financial advice industry can take advantage of this and provide services to those people who are more engaged.”

But she conceded that the regulators who had insisted on more oversight and qualifications for the industry had, as a result, made it more expensive for the public to access.

“What we’re seeing now is a shift in the expectations of Australians. They want to receive financial advice that is affordable, accessible but of high quality,”she said.

Getting the right model for affordable and accessible financial advice is certainly on the Senator’s agenda.

One solution could be robo advice and advances in financial technology.

“There was already a move towards a technological solution to the financial advice conundrum, and I think as a result of this situation you will see them fast tracked when we come out on the other side.

Another is the possible use of registered tax agents.

“At the moment, any policies have been proportionate, targeted and temporary. That said, allowing tax agents to provide single issue advice at times like this is a test, and we’ll see how that goes.”

The Senator said she expected all Australians would come off the COVID-19 period with a fresh approach to their finances.

“For most families the concerns are immediate. How do I get through this today. But once we get to the other side, we want to make sure families can get back to their life or take advantage of opportunities in the future.

“For some workers, things will never be the same unfortunately. But for some, it will be a better time.”

The government is hoping for growth of 6-7 per cent in 2021 and, looking on the upside, this period has proved Australian workers flexible, and the digital landscape shows working from home is a real possibility long-term.

For those seeking to upskill, she recommended courseseeker.edu.au.

“This is such a dreadful and uncertain time for all Australians. Life has changed in a way we couldn’t have imagined just a few months ago,” she said. “But if we look after each other we will get through this.”

And her own personal savings tip to get the Hume household through the lockdown?

As a mum of teenagers, her personal tip: her children “have a passion” for tinned tomato soap.

“I don’t think there is a cheaper meal out there – and I’m sure there is nutritional value in it,” she said.