Young Aussies’ risky decision to access superannuation early

It was supposed to help struggling Australians get through the COVID-19 crisis – but this controversial policy could harm one particular group.

The Government’s decision to allow Aussies to dip into their super early as the coronavirus pandemic devastates the economy is likely decimating young people’s retirement savings.

Earlier this year, the Federal Government announced retirement funds would be made available to those experiencing financial hardship because of the COVID-19 crisis.

Under the plan, 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.

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And it turns out that young people have been taking up the offer in large numbers, which could have a serious impact on their finances long term.

According to new Treasury data, 1.4 million Australians have already accessed some of their super – and about one third of them are aged under 30.

More than 463,000 people who have accessed super early are under the age of 30, while almost 23,500 are under 20 and 172,100 are between 21 and 25.

It’s alarming because, as finance expert and Women With Cents online finance platform founder Natasha Janssens previously told news.com.au, the younger you are, the more withdrawing super early could impact your retirement.

For example, a 25-year-old who withdrew $20,000 from their super now could end up losing more than $130,000 when they retire, while the same withdrawal from a 35-years-old’s account could represent an $80,000 loss of future benefits.

“Superannuation tends to grow over the long term, and by taking out more than necessary now, people might miss an opportunity for future growth, leaving them with a lower retirement balance,” she said.

“Early access to retirement savings should only occur under extenuating circumstances and needs to ensure it gets to those who need it most, in an efficient manner.”

‘DEVASTATING CONSEQUENCES’

Shadow treasurer Jim Chalmers said many Australians who had missed out on the JobKeeper wage subsidy had been forced to withdraw their super, and argued young people were being disproportionately hurt.

“That will have devastating consequences for the type of income that they can rely on in retirement,” he told reporters today.

“The government is in many ways robbing them of a decent retirement.”

Paul Robinson recently launched a #SaveOurSuper Change.org petition calling on the government to repay what he termed Australia’s “$50 billion superannuation ‘People’s Loan’.”

The petition argues COVID-19 should not leave the country with an “even more entrenched retirement underclass in 30 years”.

It demands the government commit to “dollar for dollar super contribution matching” for all accounts valued below $100,000 in 2022, up to a contribution value of $22,000.

The younger you are, the more withdrawing early can hurt you.

He told news.com.au he was concerned young people were being especially impacted by the Super Early Release Scheme, which he claimed “has created an unnecessary political and economic divide between those that have accessed and those that have not”.

“In the short term young people have an opportunity to meet the financial demands of their everyday life, but superannuation was never meant as a national relief fund – the JobKeeper program was,” Mr Robinson said.

“Without the political motivation to remedy this sooner rather than later, meeting the projected budgetary shortfall in the aged pension will become a defining political issue for young people today and generations to come.”

He said he had heard anecdotally of people who have used their super to buy things like cars, at the expense of their future security.

Meanwhile, Rachel Hamlen, Head of Customer Experience at FairVine Super, told news.com.au accessing superannuation early could be a huge help for some struggling Aussies.

But she stressed it should be a last resort, especially for young people.

“With so many people losing their jobs and worrying about keeping a roof over their heads and food on the table, the ability to dip into your retirement nest egg will provide a lot of families with some much-needed peace of mind to get through the next few months of unprecedented uncertainty,” Ms Hamlen said.

“With that said, accessing your super early should be a measure of absolute last resort. That money is there to help fund your retirement, and draining it unnecessarily may cause you serious financial hardship in the future.

“If you do need to access the payment, consider taking only what you’ll need to get by, and also reinvesting money you don’t end up using back into your super.”

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It was a sentiment echoed by Australian Securities and Investments Commission senior executive leader, financial capability Laura Higgins, who told news.com.au Aussies should think carefully before accessing their super early.

“You might have major financial obstacles to overcome and have very good reasons for accessing your super now,” Ms Higgins said.

“But before you withdraw your super, know all your options – see if there’s government assistance you can access and speak to your bank or lender about how they can help your situation.

“Money withdrawn and spent now is money you won’t have invested for the future. Go to Moneysmart.gov.au and make an informed decision.”