Some of the money lost from dipping into superannuation early as a response to COVID-19 will be offset by higher pension payments, research by a non-partisan think tank suggests.
One of the economic bandaids 3 million people tapped into in the midst of the coronavirus pandemic is to withdraw $10,000 from their superannuation if they suffered a loss of income, according to the Australian Prudential Regulation Authority. In 1.1 million of those cases, they’ve done so twice.
And in more than half a million cases, superannuation funds have been cleared out altogether.
But the Federal Government’s decision to allow people to withdraw funds from their retirement nest egg has drawn ire from the opposition party, who allege the coming generation has carried the burden of dealing with the government’s coronavirus response.
Pensions will offset superannuation withdrawals: Grattan
New modelling from the Grattan Institute acknowledges younger people will be out of pocket by dipping into their superannuation early, but suggests that some of these losses will be offset by being eligible for higher pension rates.
The non-partisan think tank published their findings on The Conversation, after studying 80,000 federal enterprise agreements made between 1991 and 2018 for its recent report, No free lunch: Higher superannuation means lower wages.
They cited a 35 year old earning the median income as an example. Were they to withdraw $20,000 from their superannuation, their balance would be $58,000 less.
But the lower superannuation would be offset by higher pension repayments, due to the government’s pension means test, resulting in their retirement income falling by $24,000 -- a loss of $4000.
This would equate to them earning 88 per cent of their income before retiring, as opposed to 89 per cent, the modelling showed.
Grattan acknowledged the example was a generality that is not necessarily applicable to everyone.
The “very lowest income earners will receive less extra pension to compensate, and will have less of a cushion”, the authors wrote.
The findings of the report precedes a mandatory rise in superannuation under legislation supported by both sides of Federal Parliament, which will see contributions increase from 9.5 per cent of wages to 12 per cent by July 2025.
‘Young Australians have borne the brunt of the crisis’
The Labor Party, which has referred the Federal Government’s early release superannuation scheme to the Auditor General citing the plundering of fraudsters, said the government’s coronavirus response had been paid for by people between 20 to 35 years of age.
“Instead of receiving timely government support, young Australians have borne the brunt of this crisis and will be forced to continue to pay the cost in years to come,” Stephen Jones said, the shadow assistant treasurer and shadow minister for financial services.
Mr Jones said a 25 year old who withdraws $20,000 from their superannuation will be $80,000 to $100,000 worse off in retirement, after taking into account the cost of inflation and living expenses.
He said a 35 year old would be $65,000 worse off, a figure slightly above the Grattan Institute’s estimate of $58,000.
“Collectively under 35s, will be at least $51 billion worse off at retirement,” Mr Jones said.
“So far, more than 606,000 Australians have emptied their superannuation accounts. 494,000 of those are under 35 years of age.”
Fraudsters pillage superannuation
Labor referred the scheme to the Auditor General on Sunday
The superannuation scheme, announced in March as the first wave of COVID-19 plummeted cities across the country into lockdowns, is alleged to have been targeted by fraudsters who plundered the retirement savings of unsuspected victims.
“Government ministers are … yet to reveal how many fraudulent claims have been made, or what the government is doing to compensate victims after the ATO directed their super fund to make a payment to a fraudulent account,” Mr Jones said.
That same morning, the Australian Federal Police charged three people with allegedly submitting false claims to gain early access to superannuation under the Government's early release of superannuation measure.
An ATO-led task force alleges they submitted several fraudulent applications -- claiming to be other superannuation fund-holders -- to attempt to access early release of superannuation payments totaling $113,500.