Recontribute into your super

2 August 2021

Australians who accessed their superannuation as part of the federal government’s COVID-19 relief scheme – but who didn’t use all their funds – can recontribute that money back into super without incurring a penalty. 

As part of the COVID-19 Early Release Scheme, Australians facing financial difficulty could withdraw up to $20,000 from their nest egg in two, $10,000 tranches across two financial years.  In fact, Australian Prudential Regulation Authority figures show 4.8 million Australians applied to withdraw money from their super last calendar year via this program. 

However, not all of the $36.4 billion withdrawn was used for immediate hardship purposes, with the Australian Bureau of Statistics finding that one in eight people (13 percent) used the money to add to their savings. 

Given financial circumstances improved quicker than anticipated for some people, there may be Active Super members who find themselves in a position where they can recontribute those funds back into their super. 

Withdrawals can be costly

While it can be tempting to make withdrawals for more immediate costs, taking money out of super can have significant consequences over the long term. 

Estimates from the Association of Superannuation Funds Australia show a 30-year-old who withdrew $20,000 in today’s dollars could lose around $60,000 at retirement. Of course, estimates vary based on many factors, such as investment strategy, retirement age and super balance. 

Generally speaking, younger members often stand to lose more from early withdrawals because of the effects of compound interest over the long term.

Recontribution strategy

Members who have taken money out of the super system may have the chance to put it back in using what’s called a recontribution strategy. 

When a member takes money out of super as a lump sum before retirement, they may pay a certain proportion of tax to the Australian Tax Office (depending on their age and the components of the withdrawal). If they choose to recontribute, they may be eligible to put the money back into super as a non-concessional (after-tax) contribution. They may also be eligible to make concessional (before-tax) contributions.  

It’s important to remember there are limits on how much a member can contribute before and after-tax. 

Recontribution may also affect a member’s tax position, so it’s worth seeking advice to find out what may be appropriate. 

Contact us to find out more about recontributing into your super.