Short-term gain, long-term pain

The government’s plan to allow Australians early access to super to help them through the coronavirus pandemic should be a last resort, says the convenor of the Actuaries Institute’s Superannuation Practice Committee, Tim Jenkins.

While Industry Super Australia (ISA) has said it will work hard to ensure members have access to their super in line with the government’s recently announced early access scheme, it, too, is concerned early access will have long-term detrimental effects on members’ savings.

For some members, though, short-term financial survival might rely on their ability to access up to $20,000 from super, as the scheme allows. 

“Analysis shows a 20-year-old who accesses the full $20,000 available under the scheme could lose more than $120,000 from their retirement balance,” says ISA.

“A 30-year-old who accesses $20,000 from super now could lose about $100,000 when they hit retirement and a 40-year-old could lose more than $63,000.”

ISA suggests Australians should exhaust all other wage stimulus measures, including increasing welfare support payments, before tapping into their super.

“Members should tread carefully and only think about cracking open their super after they’ve taken up the extra cash support on offer from the government. Super should be the last resort given the impact it can have on your retirement nest egg,” said ISA chief Bernie Dean

“Taking your super now is like selling a house at the bottom of the market – you’ll lose money you would probably claw back over time.” 

Mr Jenkins agrees.

“The new policy could indeed exacerbate the losses super is facing if funds are forced to sell assets,” he told YourLifeChoices.

“This is quite likely as some superannuation funds will be affected more than others, such as those that cater for hospitality and retail sectors.

“If super funds are forced to sell assets to meet the payments, they will not only be locking in the losses to date on these assets, but this also could drive the price of assets down further as the funds will likely all be selling at the same time. Supply will exceed demand – in a market that is already low in confidence.”

Mr Jenkins said short-term demand from investors for early access to their superannuation could exceed $25 billion if 1.35 million working Australians each accessed the full amount of $20,000.

The Australian Tax Office (ATO), which would decide who can have early access to their super, could also distribute payments, and possibly invoice superannuation funds, which could spread the impact of withdrawals over time.

“There may be a need for the funds and the government to look at ways to enable early access and smooth out the ability and capacity of funds to pay,” said Mr Jenkins.

“A possible solution is for the ATO, in addition to making the determination, to distribute the payments to further streamline the process to get money into the hands of those in need quickly.

“The ATO could then invoice the superannuation funds over the following few months to spread the cash flow impact on funds.

It is up to the government to make difficult financial decisions to balance the short-term health and economic risks to the community against the long-term effect on retirement incomes, said Actuaries Institute chief Elayne Grace.

“Early access to super will help ameliorate some of the short-term pressures people, their families and their communities face,” Ms Grace told YourLifeChoices.

“We know large parts of the community have insurance through their super fund. We want people to have access to their funds, to help them through very difficult times, but it is important to know and map the consequences.

“The Actuaries Institute would encourage the government to commit to restoring and maintaining the integrity of the retirement income system after the crisis ends.”

Will you need to access some of your super? What do you think of the plan to allow early access to super?

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Written by Leon Della Bosca

Leon Della Bosca has worked in publishing and media in one form or another for around 25 years. He's a voracious reader, word spinner and art, writing, design, painting, drawing, travel and photography enthusiast. You'll often find him roaming through galleries or exploring the streets of his beloved Melbourne and surrounding suburbs, sketchpad or notebook in hand, smiling.


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