The government is allowing eligible workers to withdraw their super funds early in response to coronavirus-driven unemployment. The latest figures show more than two million payments have been made to Australians from the scheme but experts are warning it could severely impact future generations.
The superannuation scheme, announced on 22 March, was implemented to allow workers struggling financially to access their super funds in light of the pandemic’s impact on employment figures. This meant Australians could, provided they were eligible, withdraw a sum of $10,000 during the 2019/20 financial year with a further $10,000 permitted after 1 July until 24 September 2020.
The early release of super is available to anyone facing unemployment and who’s also been receiving income support payments. They’re tax-free and do not need to be included in tax return declarations.
But Future Super’s co-founder Kirstin Hunter told Lifehacker Australia the government’s scheme was making desperate Australians choose between eating today and having a comfortable retirement decades down the track — something young people especially are less concerned about.
“[Superannuation] allows people who work in Australia to retire, a privilege that’s increasingly rare in the western world,” Collins said over email.
“By withdrawing from super early, people are being asked to choose between putting food on the table today and having a comfortable future worth retiring into.
“There’s no getting past the fact that you can’t eat compound interest.”
Former Labor minister and now chair of Industry Super Australia, Greg Combet, also slammed the scheme in an interview with the Sydney Morning Herald, stating it would put a lot of pressure on the tax bills of future generations.
“There will be more people with nothing in their accounts [if this happens],” Combet said to the Sydney Morning Herald.
“It makes it so much harder and pushes the cost onto future generations to pay the pension.”
According to APRA, the financial services industry regulator, it’s too late to reconsider making that choice as around 2.3 million Australians have already used the scheme to access their funds. Its latest report shows $17.1 billion in super funds has been paid out, averaging around $7,492 per application.
Withdrawing now means losing on decades of compound interest
Part of the reason the scheme has been criticised so heavily is because of the impact it will have on young people’s future retirements.
According to modelling released by Super Consumers Australia, Council On The Ageing (COTA) Australia and CHOICE, the consequences of withdrawing super funds now could mean losing out on thousands of dollars in compound interest.
It found a 30-year-old taking out $20,000 now would result in a $49,823 loss by retirement age.
“The average age of those withdrawing their super is 32. For these, withdrawing $20,000 will lead to an eventual reduction in their super balance of $50,000 by the time they retire. This issue is not one of money, but of time,” Hunter said.
“However, as we potentially enter a recession which will have an even greater impact on our super balances, it’s impossible to say just how much worse off you will be at retirement.”
A pot of money is a tempting proposition in a time like this but it’s worth reconsidering other avenues to ensure future you doesn’t have to face a level of hardship too.