The Australian Institute of Superannuation Trustees (AIST) wants the government to top up the retirement accounts of low-income earners who withdrew money from their super to help them get through the pandemic.
The government’s early access to super scheme led to around 3.4 million Australians withdrawing up to $20,000 from their retirement savings.
With businesses shut down and lockdowns and restrictions putting many out of work or with limited hours, the early access to super scheme provided a lifeline for those most financially affected during the height of the pandemic.
AIST research revealed that almost one million workers who accessed the government’s early super access scheme now have zero balances or balances less than $1000. Younger workers were twice as likely to empty their superannuation accounts as members aged over 35. Women were more likely to have emptied their super accounts than men and over 73,000 Australians had lost their insurance as a result.
Treasury’s Retirement Income Review showed that, on average, a 30-year-old who took out $20,000 in early withdrawals would be $40,300 worse off by time retirement age.
While there is much evidence the recession mostly affected young people, the AIST’s plan may favour younger workers but has the backing of social services groups and older Australian advocacy groups.
According to AIST chief Eva Scheerlinck, those who had to access the scheme were “already experiencing disadvantage and … were already facing a retirement savings shortfall”.
She’s called on the government to help them make up this shortfall with a one-off contribution of up to $5000 paid into the retirement accounts of those who earn less than $39,837 a year, accessed their super early, and met certain eligibility criteria.
“This would be the most effective way to close the COVID super gap for these Australians,” she said.
“[The one-off] contribution would be set at a quarter of the value of the super the member accessed and be capped at a maximum $5000 contribution for those who accessed the full $20,000.”
Labor welcomed “constructive suggestions about how to repair the damage done to super by the government’s flawed early access scheme” but is still focused on insuring the government doesn’t scrap the legislated compulsory super increases slated to start in July.
“The main game is 12 per cent,” Labor financial services spokesman Stephen Jones told The New Daily.
“Fighting the Morrison government’s plan to cut super and force retirees to sell their house is our focus.”
Industry Super Australia deputy chief Matt Linden agrees that lifting the super guarantee is a priority.
“Beyond that, there have been precedents by previous Coalition governments to provide top-ups for low-income earners, albeit when the budget was in much better shape,” he said.
The Grattan Institute is not a fan of the super top-up plan, saying there are more effective ways of keeping Australians out of poverty in retirement.
“If the concern is poverty, then there are much more direct ways to fix that than putting $5000 into someone’s superannuation account on the expectation that some of those people will struggle [when] they reach retirement, when many others won’t,” said Grattan’s household finances program director Brendan Coates.
“It’s not targeted, because at the point in time when you’re giving them the money, you’ve got very little sense about whether that particular group – particularly if they’re early in their life and have taken out super – is likely to end up struggling long term.”
Mr Coates said boosting the rate of JobSeeker and boosting Commonwealth Rent Assistance would be a better idea.
“[A super top-up] is not a priority compared to increasing the social security net,” he said.
And Ms Scheerlinck agrees, but maintains the AIST’s proposal addresses a different issue.
“Our focus, with this proposal, is for improving the financial security in retirement of low-income earners and ensuring that future taxpayers are protected from having to fund ballooning pension costs,” she said.
“It’s about recognising that many low-income earners and women will not be in a position to make up their COVID super gap over their working lives.
“It’s also about intergenerational equity – if more people are on the pension in future years, every young person today will have to pay more tax in the future to fund higher Age Pension costs.”
National Seniors Australia and the Council on the Ageing Australia have both shown support for the plan, although each has its own ideas about how the funds could best help low-income workers improve their retirements.
National Seniors chief executive Professor John McCallum said the plan “is a small investment now which will bring a low income, disadvantaged group into a more satisfactory position in later life”.
“The one negative is that the money won’t go to other people in that category who didn’t draw down,” he added.
The Council on the Ageing Australia chief, Ian Yates, was supportive of “equitable measures to enable people to restore their super balances” but is still working through how this could be done and requires further analysis of long-term impacts of withdrawals and economic modelling before fully backing the proposal.
Other groups have other ideas about how the government could support low-income workers hit hard by the pandemic.
BetaShares senior investment specialist Roger Cohen is concerned that the scheme only supports those who had withdrawn funds and ignores low income workers who kept their hands off the nest eggs.
“It is not fair. Someone who struggled and made do so as not to take money from their super would be effectively penalised now compared to someone who took the money,” said Dr Cohen.
“Instead, the government should allow those who took money early to top up their super with and receive concessional tax treatment for any additional contributions up to the amount they took out early.”
And Australian Council of Social Service acting chief Edwina MacDonald wants regular, annual government contributions to boost the super accounts of lower-income workers “at the same or a higher rate than the tax breaks for people on higher incomes”.
When Senator Jane Hume was asked if the government was likely to support such a plan, she said the best way to help Australians rebuild their savings was to get them employed.
“The early release of super scheme was not compulsory – it was a flexible option and almost three million Australians weighed up the decision and decided that withdrawing their super was the best financial decision for them,” she said.
“We know that the majority of Australians have spent this money paying down their mortgages, paying down debt and paying off credit cards. That’s responsible.”
What do you think of the AIST initiative? What do you think of the other group’s ideas? Should the government be on the hook for helping those who accessed their super early?
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