Industry Super Australia (ISA) has called the COVID-era early release of super scheme a ‘mistake’ and said a legislative super purpose could have prevented long-term harm on retirement savings.
During the COVID-19 pandemic, the Government allowed eligible individuals to withdraw up to $20,000 from their superannuation accounts.
Over 2.6 million Australians jumped on the scheme and withdrew 51% of their balances on average.
Enabling Australians to access such large funds with limited restrictions would have long-term impacts, ISA said.
This included seeing individual balances dwindle and taxpayers forced to pay billions more in future aged pension costs.
“The impact of encouraging people to raid their super will be another type of long COVID, leaving many worse off in retirement and that means a bigger pension bill for everyone,” said Bernie Dean, Industry Super Australia chief executive.
He explained that people were faced with a “wicked choice” between sacrificing their superannuation and bailing themselves out during the pandemic.
“No government should ever force Australians to make that choice again,” the CEO added.
ISA modelling further identified its long-term impacts, finding that every $1 taken out during the scheme added up to $2.50 to the aged pension, “a bill every Australian could pay through taxes”.
An academic study released by the Australian National University (ANU) and George Washington University also revealed $38 billion had been withdrawn from Australians’ retirement savings, representing a significant liquidity shock.
Derived from anonymised data from the Australian Taxation Office and the Social Security Department, it found many spent their funds on highly discretionary items such as gambling, furniture purchases and takeaway meals.
Spending on gambling alone increased by almost $300 amongst those who accessed it, particularly by young Australians.
Moreover, up to a quarter of applicants emptied their accounts within days of the program’s start.
With all this, individuals deprived themselves of $120,000 in retirement savings, the analysis showed.
The study estimated that nearly one million Australians wiped out their super savings entirely.
“While COVID was a tough time, encouraging people to raid their super before offering other support like JobKeeper was a big mistake – and this latest study confirms it,” Dean said.
The ISA chief executive highlighted that the study reinforced why the Government should legislate super’s objective as retirement savings and should only be accessed in dire personal circumstances.
If the super objective became legislation, ISA believed it could have prevented the Government from allowing Australian’s to access their super when stimulus packages were a viable solution.
“This scheme reinforces the need to legislate an Objective of Super that puts the concept of preservation at its core.”
