Nearly half a million Australians have been approved to withdraw a total of $3.8 billion (US$2.4 billion) from their superannuation (super) retirement funds since the Australian Taxation Office began to process the early access applications on April 20, Treasurer Josh Frydenberg announced at a press conference April 23.
The money is expected to be paid out by super funds within the next week to help Australians cope with financial hardships caused by CCP (Chinese Communist Party) virus, commonly known as novel coronavirus.
“The Australian Taxation Office has approved 456,000 applications, totalling $3.8 billion,” said Frydenberg. “Those applications are now with the superannuation funds for their payment over the next five days.”
“The average withdrawal is around $8,000,” he added.
In an effort to provide further relief to those who are the worst-hit amid the economic downturn induced by CCP virus, the federal government introduced the early access policy in late March. Up to $10,000 can be withdrawn tax-free from superannuation funds this financial year 2019-20. A further withdrawal of $10,000 is allowed in the next financial year, starting July 1. This arrangement will be in place until September.
“These extraordinary times demand extraordinary measures,” the treasurer said in a statement when announcing its $66.1 billion packages to support workers and households amid the crisis.
According to the policy, an early release of superannuation is available to those who are unemployed and/or who are eligible for the government’s coronavirus supplement which is a $550 per fortnight additional payment to recipients of the JobSeeker Payment, Youth Allowance jobseeker, Parenting Payment, Farm Household Allowance, and Special Benefit.
Those who have been made redundant or had their working hours reduced by over 20 percent, as well as sole traders whose revenue has fallen by 20 percent or more since Jan. 1, can also apply for early release of their super.
Concerns Over Long-Term Financial Security
Despite the immediate relief from tax-free cash, taking out money now means super fund members will end up with significantly reduced savings by the time of their retirements due to the loss of compound interest benefit and missing-out on potential investment opportunities when the economy recovers.
On April 16, the Conexus Institute, Super Consumers Australia, and The Actuaries Institute released an information sheet to estimate the impact of early access on retirement savings for different age groups.
According to the calculation, a 30-year old member withdrawing $20,000 (US$12,700) over two years now could potentially reduce their superannuation balance at retirement (at age 67) by $50,000. For a 40-year old, the loss could be up to $39,000, for a 50-year old this would cost them $30,000, while a 60-year old will end up with a $24,000 reduction in their balance.
The information sheet states:
Withdrawing from your super now can only reduce savings at retirement which means less income.
The size of the impact is uncertain because it will depend on unknown factors such as the future rate of investment earnings on your super.
Super Consumers Australia Director Xavier O’Halloran warns that this may force members to give up on insurance in future.
“You should also consider your insurance needs, as early access may leave you without enough savings to continue paying for insurance premiums in super,” he said.
The move also sparked concerns that the drawdowns could weaken the superannuation industry as a whole.
“Selling your super at the bottom of the market will risk squandering people’s hard-earned retirement savings,” opposition Labor leader Anthony Albanese said in a statement in response to the decision.
“It is also the case if the superannuation industry is forced to sell assets at the bottom of the market. That also is not sensible economics.”
Should Be a Last Resort: Advocates
Given the potential costs and risks, consumer advocate organisations are urging super fund members to exhaust all other options before dipping into their retirement savings.
A joint statement was released by Super Consumers Australia, Council On The Ageing Australia (COTA), and CHOICE to tell people there are a number of financial assistance options to help get through these tough times.
“Super will be the right option for some, but you should be looking at what else is available and possible cuts to discretionary spending before raiding the cookie jar,” Super Consumers Australia Director Xavier O’Halloran said.
The message is echoed by CHOICE Policy and Campaigns Adviser Patrick Veyret, who reminded consumers that “accessing your super should be a last resort.”
He encouraged those in financial difficulties to contact financial counsellors, not financial advisers, for a free and independent service.
“They can help people navigate through financial hardship, access government payments, and assist with any debt matters,” he explained.
The advocates also warn of scammers, urging consumers to stay well away from anyone who offers to help them access their superannuation early, for a fee.
“If you get an unsolicited email about early access to your super, delete it. If you get an unsolicited call, hang up, ” O’Halloran said.
Visit https://moneysmart.gov.au/retirement-income/retirement-planner to estimate how much money you will have in retirement, factoring in any breaks from the workforce.