Super Early Release Scheme: Big problems with accessing superannuation early

More than two million Aussies have jumped at the chance to access their superannuation early – but is it really such a good idea?

Alarm bells started ringing almost immediately after the Government announced it would free up superannuation savings for Aussies doing it tough during the coronavirus crisis.

Under the Super Early Release Scheme, eligible Aussies are able to grab $10,000 from their super this financial year and a further $10,000 in 2020-21, with applications being accepted through Australian Taxation Office online services in myGov.

But the scheme proved to be controversial, with critics arguing it should be a “last resort” only and that accessing cash now would have dire long-term consequences for retirement nest eggs.

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But that grim warning hasn’t hampered enthusiasm for the policy, with new Australian Prudential Regulation Authority figures showing $14.8 billion had already been withdrawn.

At June 7, 2.12 million applications to access super early had been lodged with the tax office.

And alarmingly, earlier this month an analysis by illion and AlphaBeta – part of Accenture – revealed 40 per cent of Aussies who had withdrawn super early either had no decrease in income or had received government benefits to cover any loss.

In an article published in the Sydney Morning Herald, AlphaBeta founder Andrew Charlton said there were two glaring issues with Mr Morrison’s scheme – firstly, the eligibility criteria were “very broad” and secondly, there is also “no requirement for any supporting evidence, no income verification and no need to prove that the lost income hadn’t been made up with government support”.

It means the online application can be completed within minutes, with the cash landing in accounts within five days.

AlphaBeta also found that two-thirds of additional spending once the funds arrived went towards “discretionary items” including clothing, furniture and alcohol, with more than 10 per cent spent on gambling.

“For many people, this was a moment of opportunistic spending, rather than an hour of need,” Mr Charlton wrote.

But for Jarrod Partridge, the money was a welcome lifeline.

Mr Partridge, who owns online content creation firm Idea Guru, lives in Bali with his wife and young son – but the family found themselves trapped in Australia during a visit in March when borders closed locally and then in Indonesia.

“In the quest to get home we spent all our liquid cash on new flights, doctors’ certificates for fitness to travel and unplanned accommodation,” Mr Partridge told news.com.au.

“The drawdown of super was to help cover some of our lost income due to clients cancelling their service because of COVID-19, and the remainder was then used to clear a maxed-out credit card after spending money on all the flights.

“At the time, I was a little concerned about drawing from super, given it would hurt the benefits of compound interest over the long term. However, with funds flying out the door fast, and several clients unable to pay invoices as they were in the same boat as us thanks to COVID-19, we were losing a lot of sleep and burning negative energy stressing out over finances.”

The family decided it would be worth the financial risk to relieve the financial pressure in the short term, and plan on putting the money back into Mr Partridge’s super account once the situation stabilises.

He said he had originally planned on withdrawing the second $10,000 next month, but that money was “no longer as tight” and would not be necessary.

Jarrod Partridge used part of his super to cover unexpected costs after his family was trapped in Australia due to COVID-19 border closures. Picture: Supplied

Lyndsey Jackson is another Aussie who has few regrets about accessing super early.

She put her $10,000 withdrawal towards mounting bills as well as helping to buy a car for her ex-partner to make it easier for him to see their children after his job was impacted by COVID-19.

She told news.com.au she was “very aware” of the dangers of using part of her super balance but that it had been the right decision for her family.

“It was definitely a relief to have that cash … but I’m single and conscious of where it leaves me,” she said.

“I am putting my mind towards how on earth I’m going to pay it back – that’s a real consideration, and I do think having money when I retire will be even more critical in the next 20 to 30 years because we just don’t know what things will look like.”

While the 38-year-old believes withdrawing her super was the right thing to do, she said she was concerned others might not be able to pay it back.

And she said the lack of evidence required before the cash was released was also worrying.

“I don’t understand why the Government is being so blasé – all my adult life as a worker it has been drilled in to put money into super, and I think the messaging is confusing now,” she said.

“I don’t think people have really given much thought about how they will readjust their budgets going forward to pay it back,” she said.