Almost 400,000 young Australians have taken their superannuation early during the COVID-19 crisis, fuelling fears they will be forced to rely on the pension in retirement.
In March, the government changed super rules to allow Australians who had lost their jobs or had hours reduced to access $10,000 in super and a further $10,000 from July 1.
So far, an estimated 395,000 people aged under 30 have already eroded their entire super balance, according to new analysis from Industry Super Australia.
There has been such a rush to access the Morrison government’s early release scheme that it crashed the ATO website this week.
The ISA estimates that around 480,000 Australians had stripped their super accounts by June 14, with the vast majority comprising of young adults.
A 25-year-old taking out $10,000 now could have $49,000 less in retirement, a 35-year-old could lose up to $34,000 and a 45-year-old up to $23,000.
Experts fear hundreds of thousands of young Australians who cleared their accounts to help them stay afloat during the coronavirus crisis will need to rely on the pension when they retire (pictured, a young woman is seen wearing a mask at Sydney airport on Thursday)
New analysis Industry Super Australia (ISA) estimates 395,000 people aged under 35 have wiped their superannuation (pictured, people queuing outside a Melbourne Centrelink office as lockdown hit in March)
The figures are based on analysis of Australian Taxation Office data on accounts with balances below $10,000 and treasury statistics on the age distribution of those who applied for the scheme.
On average, about 15 per cent of Australian workers have accessed their super early.
Three states were above the national average – Queensland at 20 per cent, Northern Territory 19 per cent and Western Australia 16 per cent. Only 8 per cent of ACT workers accessed their super early.
WHO CAN ACCESS COVID-19 EARLY RELEASE OF SUPER
Citizens and permanent residents
Citizens and permanent residents are able to apply to access up to: $10,000 of their super until June 30 and a further $10,000 from July 2020 1 until 24 September 2020.
Applicants must satisfy one or more criteria:
- You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance.
- On or after 1 January 2020, either: you were made redundant, your working hours were reduced by 20% or more, your business was suspended or there was a reduction in your turnover of 20% or more.
SOURCE: AUSTRALIAN TAX OFFICE
Demand for the scheme has already surpassed the government’s expectations that about 1.65 million Australians would take out $27billion.
More than 2.2 million have already withdrawn a combined total of $18.5 billion, taking out an average of $8,000 each.
The trend has appeared to continue into the next phase, with the ATO website crashing earlier this week as thousands flocked to complete the second round of applications.
The site buckled within half an hour of the new financial year, with users reporting outages from as early as 12.14am on Wednesday morning.
Although industry super funds have supported the scheme’s aim to get cash to those in financial need, the ISA is renewing calls for members to only access the funds as a last resort.
It comes amid troubling reports the money is being used to gamble, buy alcohol and for other discretionary spending.
‘To have hundreds of thousands wiping their savings out midway through their life is a tragedy waiting to happen and it will affect everyone,’ ISA chief executive Bernie Dean said.
‘Every Australian deserves a good life in retirement, not just scraping by on the pension.’
Before the second tranche opened, Mr Dean warned young Australians early withdrawals could also ‘wipe out’ their life and income protection cover if your super balance falls low.
Applications for accessing super early in the 2020-21 financial year close on September 24.
Australians can only access their super if they’re unemployed, are eligible to receive a JobSeeker payment, have been made redundant since January 1 or had their work hours reduced by at least 20 per cent.
A barista working in a Sydney cafe on July 1 (pictured) amid concerns young people have withdrawn too much from their supers to help during the coronavirus pandemic
Last month, the government warned it would take against anyone who tried to exploit the system.
Those who provide false or misleading information could face penalties of more than $12,000 for each false and misleading statement.
The MoneySmart website advises Australians to seek government assistance and speaking to their bank or lender about possible financial assistance before dipping into your super.
THE PROS AND CONS OF ACCESSING YOUR SUPERANNUATION EARLY
- Dipping from your superannuation can provide support if you urgently need financial assistance as a result of the coronavirus crisis
- Money accessed through this scheme is tax-free
- Money accessed now may be more valuable now than in your retirement
- Depending on your age, withdrawing money now could see you miss out on more than double that amount by the time you retire as money taken out won’t deliver compound interest
- A 25-year-old taking out $10,000 now could have $49,000 less in retirement, a 35-year-old could lose up to $34,000 and a 45-year-old up to $23,000.
- Withdrawing money will likely see you cash out near the bottom of the market
- The issue is even more problematic for women, who on average retire with 40 per cent less super than men
- If you withdraw your full super balance or do not have enough left to pay for premiums, it can affect your life, total permanent disability or income protection insurance