“Early withdrawal of super” may leave youth $100k worse-off in retirement

Federal Opposition steps up attacks on coronavirus support measures.  This allows people in hardship to withdrawal some super early.

Labour said the Covid-19 economic crisis will greatly affect the younger generation. It estimates someone aged 25 who withdraws $20,000 may be up to $100,000 worse off in retirement.

Early Access to Super Scheme

The opposition is stepping up attacks on government’s handling of early access to superannuation scheme.  This enables those dealing with economic effects of Covid-19 to withdraw up to $10,000. And, people were able to access up to $10,000 last financial year.

Shadow assistant treasurer, Stephen Jones, states “young Australians have borne the brunt of this crisis and will be forced to continue to pay the cost in years to come”.

Australia is easing superannuation access for those worst-hit by coronavirus. But can we afford it?  Read more

“After accounting for inflation and cost of living, a 25-year-old who withdraws $20,000 will be $80,000 to $100,0000 worse off in retirement.  A 35-year-old who withdraws $20,000 will be around $65,000 worse off. Collectively, under 35s will be at least $51 billion worse off at retirement.”  Jones.

However, the Labor party released estimates a few days after it asked the auditor general to look into failures in implementation of the scheme.

Early Super Scheme Releases to date

The superannuation early release program has currently paid out $32bn from retirement savings.  This is is set to top $42 billion by December.   Former PM, Paul Keating raised concerns 590,000 accounts had been withdrawn to a zero balance.

While Opposition says it supports the original intent of the scheme, it argues there has been insufficient checks.  This is especially true on whether people accessing superannuation are in real hardship.  Retirement savings have been exposed to fraudulent scams.

“They’re going to look back on this and think of this superannuation policy as being as dumb as the introduction of cane toads in Australia.” Jones told reporters, “this is a bad policy that has been poorly implemented.”

Fraud & Identity Theft

Allegations of identity theft involving 150 Australians prompted Government to temporarily halt withdrawals in May.  Police froze $120,000, believed to have been ripped-off from retirement savings.

An interview with Guardian Australia and Assistant Minister for Superannuation, Jane Hume, said people had always been able to access their superannuation.  This is especially true in times of financial distress.  Hume accused Keating of being out of touch with needs of those who have early access to super.

“[It’s] extraordinary that a man in a Zegna suit on a generous parliamentary pension can sneer at the decisions made by ordinary Australians who are facing some of the most challenging economic circumstances we’ve ever seen,” Hume said.

And, Labour’s figures were based on the party’s own internal modelling.

Some calculations are broadly similar to estimates published by the Grattan Institute in the past last week. The thinktank argued much of the losses to such individuals would be offset by larger government-funded pension payments.

Long Term Outcomes

The Grattan Institute calculated a 35-year-old who took out $20,000 allowed under early release of superannuation would see total funds fall by about $80,000.  Also, the institute indicated a person’s total retirement income would fall by only $24,000 in today’s dollars. 

Brendan Coates, Grattan Institute’s household finances program director, said government’s priority when launching the scheme was to get money out quickly. However, he said it made sense to tighten checking of applications to ensure people were genuinely eligible.

And, Coates reaffirmed Grattan’s position the amount of compulsory superannuation paid should not increase, because of potential effects on wages.

Superannuation Contribution Increases

Hume told Guardian Australia scheduled increases in compulsory superannuation from 9.5% to 12% were already legislated.  It would be “very difficult to unwind”.

Government has “no plan” to abandon superannuation guarantee increases.  However, it would be “irresponsible” not to consider trade-offs between superannuation increases and wages.

Therefore, the government is considering a retirement incomes review.  This was submitted to the prime minister and treasurer in late July.

If you’d like to discuss whether the withdrawal is right for you, please contact the team at Wealth Planning Partners to assess your situation.