Super withdrawal scheme puts burden of COVID crisis on the young
Many experts see the super early release scheme as poor policy.
More than 600,000 young people under the age of 35 have completely drained their superannuation accounts following the introduction of the government’s super early release scheme.
The Morrison government says the early release scheme allows people access to their money to help them in a time of financial hardship.
But Paul Keating, the key architect of compulsory super, says the opposite is true: early access to super savings is not about the government helping people through a time of hardship but about those people helping the government through a time of hardship by shifting much of the cost of stimulus on to workers, particularly the young.
“Of the income support to date, in this COVID emergency, $32 billion has been paid for by the most vulnerable, lowest paid people in the country – that’s the people who have taken $20,000 out – and $30 billion has been provided by the government under JobSeeker and JobKeeper,” he told an Industry Super Australia (ISA) seminar.
According to the Australian Prudential Regulatory Authority (APRA), Australian workers took more out of their super accounts in the June quarter than what they put in. It is the first time there has been negative net contributions since the compulsory retirement scheme was introduced in 1992.
Matt Linden, deputy chief executive of ISA, says all members of super funds are negatively impacted by the early release scheme, not just those who withdraw from their accounts.
He says super funds have had to “shift their asset allocation from growth assets into cash, which basically earns members nothing, almost nothing” in order to meet the demand for the early release of super.
“No one doubts that there is real financial hardship out there and superannuation has an important role to play – but the system was never designed to be a broad-based social insurance model. The level of contributions to sustainably support that would be at least twice the current levels,” he told The Saturday Paper.
A survey by analytics consultancy Alpha Beta and credit bureau Illion showed that much if not most of the money released under the scheme did not even go towards relieving hardship.
It found 40 per cent of these people saw no drop in their income during the COVID-19 crisis and spent the money on non-essential consumption.
“On average, people withdrew around $8000 and spent an extra $2855 in two weeks, compared with the same group’s average spending in a normal fortnight,” their survey found.
“Sixty-four per cent of the additional spending was on discretionary items such as clothing, furniture, restaurants and alcohol.”
“Asking young people to dip into their super now is a total cop out”
Inadequate super compounds the financial losses from the NSW public sector pay freeze, says RN Annie Smoker.
“Superannuation is not really something that people in their 20s or 30s really think about. In terms of taking out money out of their superannuation during COVID, they might not think of the long-term consequences. They see a dollar figure and think ‘Great, let me access that’ without thinking of the future.
“Then some people wouldn’t feel the pressure to take out their money. It makes me really mad that the government is asking us to go above and beyond in high-risk areas during COVID, while they are not supporting us financially.
“Nurses are really fortunate that we still have jobs, but we shouldn’t have to take on added pressures. The government is giving bonuses and pay rises to people who are already earning over $300,000, but nurses who are on the frontline are being asked to take a pay cut in real terms.
“Asking young people to dip into their super now is a total cop out. This is an economic crisis. The government should be able to manage the budget and pay frontline workers properly. The lost money is noticed by someone who is on $60,000 or $80,000 a year.”