'We give money to people on their say so': ATO admits no checks on early super access

People are using cash from the Morrison government's early access superannuation scheme to pay down mortgages or put deposits on a home as the Tax Office admitted it has not made a single eligibility check on any of the three million Australians who have dipped into $28 billion in savings.

The Sydney Morning Herald and The Age has learned one lender has seen a 10 per cent increase in the number of customers who are up to $25,000 ahead on their mortgages, compared with last year.

There are concerns people are using the early access superannuation scheme to buy real estate.Credit: Peter Rae

The ATO revealed on Thursday it was only now beginning a preliminary examination of eligibility for claims, four months after the federal government allowed people to withdraw up to $20,000 from their retirement savings if they found themselves in financial hardship as a result of the coronavirus pandemic.

To use the scheme, people must have been made redundant, suffered a 20 per cent cut in working reduced hours, become unemployed or eligible for welfare assistance such as JobSeeker, Youth Allowance or Parenting Payment.

When the program was announced, it was expected about 1.5 million people would withdraw up to $27 billion. Three million have already withdrawn $28 billion with $42 billion now forecast to be taken out.

Prime Minister Scott Morrison said superannuation savings belonged to people and not super funds, adding there were hardship rules in place to access the money.

"The rules are there to only be making this available in cases of that hardship, just as there has always been rules to support people to access their superannuation because of a particular hardship," he said at a press conference on Thursday.

But Tax Office second commissioner Jeremy Hirschhorn said a pilot program to check if people who were ineligible had used the scheme was only now being set up.

He told the Senate COVID-19 committee that although some people had been prevented from taking their money because they may have already done so or been a temporary visa holder, no one had been stopped from withdrawing funds on broader questions such as whether they had lost their job.

"We will never have enough information to reject quickly. We give money to people on their say so. We work on the assumption that Australians are honest," he said.

Tasmanian senator Jacqui Lambie said there were major issues with the entire scheme, adding "what a cluster this is".

Labor's superannuation spokesman Stephen Jones said the scheme was on track to blow out by more than $12 billion with 560,000 people already clearing out their entire superannuation savings.

Analysis by credit bureau illion and consultancy AlphaBeta earlier this month revealed people using the scheme spent nearly $3000 more than normal in the fortnight after getting the lump sum with two-thirds of the additional purchases on non-essentials including gambling, alcohol and furniture.

But banks are seeing the cash being used by home owners to pay down their mortgages.

One senior banker who was not authorised to speak publicly said the lender had seen a 10 per cent increase in the number of customers who are up to $25,000 ahead on their mortgages.

The banker said early super access was one factor contributing to the trend, alongside people selling investment properties, and households reducing their expenses.

"We are seeing increases in our early pre-payments," the banker said.

A source from another bank also confirmed customers were using funds withdrawn from super as a buffer in case they struck financial difficulties.

Managing director of consultancy Digital Finance Analytics, Martin North, said a survey he conducted showed just under one in three people who had accessed their superannuation early were putting the money onto their mortgage, or an offset account attached to a loan.

"I do think some of them are putting it into offset accounts, on the principle that they might tap into it later," he said.

Mortgage Choice chief executive Susan Mitchell said she had not seen evidence of people using super to pay off home loans, but some of the company's brokers had reported customers attempting to use money withdrawn from super as a deposit for a house.

"That being said, most lenders will not accept early withdrawal of super as genuine savings towards the purchase of property," she said.

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