Are some critical issues really understood?

early access superannuation

Debate around early access to superannuation is important but it has overlooked larger issues in the superannuation sector which remain unaddressed.

Ever since the federal government announced the COVID-19 economic relief instrument allowing people under financial stress to gain early access up to $20,000 of their superannuation benefits across this financial year and the next, opinions have differed as to whether or not this is good policy.

It stands to reason then the situation would be closely monitored as to how many Australians actually make use of the measure.

Last week, Treasury released data indicating 1.4 million people had accessed their retirement savings early. But the headline numbers many people focused on were those that revealed how many younger individuals had dipped into their super.

The figures showed more than 463,000 of the people who had accessed up to $10,000 were under the age of 30. A further breakdown of the numbers indicated 172,100 of this cohort were aged between 21 and 25, while 23,500 were under the age of 20.

These statistics led opposition assistant treasury spokesman Stephen Jones to strongly criticise the scheme on two fronts.

Firstly, according to Jones, it indicated people had sought COVID-19 financial relief from their retirement savings before pursuing some of the other government measures put in place for that purpose.

Secondly, he forecast a 20-year-old who withdrew $20,000 of their super could lose more than $120,000 from this move and a 30-year-old undertaking the same action would lose around $100,000.

These conclusions require a little more scrutiny though.

I agree with his concerns that Australians may not be looking to take advantage of other coronavirus financial relief measures before turning to their super. I have always been of the opinion that accessing super early should be a last resort if all else has failed.

However, I can’t agree with the emphasis he has placed on what younger individuals have done as justification for why the scheme is bad policy. This point also raises questions I have over how well the Member for Whitlam really understands some of the more serious retirement savings issues.

I get the significant depletion of younger workers’ retirement savings is not a positive thing. What’s more, I do understand the financial consequences that could result when the compounding of these reduced savings is taken into account.

However, on a positive note, most of these people still have the rest of their working lives to build their superannuation balances back up to a reasonable level, particularly if they put in place a concerted and sensible contributions strategy that doesn’t solely rely on super guarantee payments.

Far more serious is the data Jones did not highlight – that being how many pre-retirees and retirees have used this relief instrument. Unlike the generations behind them, these people have very limited ability or time to make contributions down the track to replenish their super balances.

Further, their savings have been smashed during the coronavirus pandemic when again they may not have enough time to ride out the current drop in markets.

These issues are basically at the heart of longevity and sequencing risk – something that has been discussed within superannuation circles for several years now, but it would appear to me, from Jones’s read of the COVID-19 early super access statistics, he does not realise just how serious this matter is.

Longevity and sequencing risk are two of the most influential factors in determining just how many Australians can fund their own retirement now. If the coronavirus economic relief measure ends up exacerbating these problems, then the situation needs to be addressed right away and Jones, in particular, needs to acknowledge this as soon as possible.


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