Australians drained $38 billion of their super in the pandemic. Here’s what they spent it on

More than 2.6 million Australians raced to drain their superannuation accounts under the Morrison government’s $38 billion COVID early release stimulus program, using the money to gamble, buy furniture and takeaway meals.

Up to a quarter of applicants emptied their accounts within days of the program’s start.

The first study of the COVID-era scheme found spending on gambling alone jumped by almost $300 among those who accessed it. Users of the scheme withdrew more than $1000 from ATMs despite the use of cash crashing during early lockdowns.

It also shows the people most likely to use it were in some of the most financially disadvantaged parts of the country with the lowest superannuation balances.

Expert analysis of the scheme suggested those people have deprived themselves of $120,000 in retirement savings.

Economist Steven Hamilton says the research shows most people struggle with trade-offs between spending in the near term and far into the future.

The withdrawal policy, announced in March 2020, was forecast to be used by 1.5 million people who would take out $27 billion. People could withdraw up to $10,000 from their super by June 30 and then another $10,000 from July 1.

Instead, 2.6 million people withdrew $38 billion, making it the second-largest stimulus program during the pandemic behind the $90 billion JobKeeper program.

To qualify, a person had to be eligible to receive JobSeeker, have been made redundant, had their work hours cut by at least 20 per cent, or be a sole trader whose business had been shut or suffered a 20 per cent fall in turnover.

Then-treasurer Josh Frydenberg defended the policy, saying it was “the people’s money and this is the time they need it most”.

But the research by George Washington University’s Steven Hamilton, ANU’s Tristram Sainsbury and Harvard University’s Geoffrey Liu, shows much of the cash was used by people for short-term ends.

Then-prime minister Scott Morrison and then-treasurer Josh Frydenberg arrive at a press conference to announce the superannuation withdrawal policy in March 2020.Credit: Alex Ellinghausen

The researchers used anonymised data from the Australian Taxation Office and the Social Security Department to determine where users of the scheme lived and how much they withdrew from their super accounts. Anonymised data from credit bureau Illion enabled the researchers to track the large changes in expenditure recorded across the country as the super was fed into the economy.

Their work shows large differences between occupations.

More than 40 per cent of people employed as construction and mining labourers used the program.

Among mobile plant operators – workers who drive heavy equipment such as backhoes, bulldozers and graders – almost 37 per cent withdraw from their retirement nest eggs. Factory process workers were the next most likely at 35 per cent.

Teachers were the least likely to use their super, at just 6.3 per cent of the sector. Other industries with a small proportion of withdrawers included information and communication technology (7.2 per cent), legal workers (9.4 per cent) and health workers (10.5 per cent).

Of those who used the scheme, five in six withdrew as much as they could with 75 per cent taking out the maximum $10,000 available to them. Three-quarters of people withdrew $10,000 in both rounds.

One-third of those who did not take out $10,000 in the first round wiped out what little they had in their superannuation. A quarter of people tapped their super within three days of the scheme being open for a withdrawal.

On average, those who used the scheme cut their super balance by 51 per cent. The researchers estimate that for those who withdrew the full $20,000 available to them over two withdrawals, the long-term cost to their super savings will be $120,000 in today’s dollars.

Hamilton, a former Treasury official, said the findings should be a wake-up call for any politician looking to allow people to access their super for anything but retirement.

“The vast majority chose not to tap into their super when given the chance, and those who did overwhelmingly demonstrated a lack of foresight – accepting a $120,000 lower balance at retirement for a few weeks of spending,” he said.

“This makes a pretty strong case for not allowing early withdrawals in future.”

Those who withdrew super moved quickly to spend, withdrawing on average $1064 from an ATM at a time when the use of cash dropped significantly. The next largest identifiable expenditure was on gambling, with an average spend per person of $293.

Earners on the lowest income were the most likely to use their withdrawal on gambling or getting cash from an ATM. Those on the highest incomes were more likely to save their withdrawal.

Withdrawn money was spent on furniture and office equipment, supermarkets, restaurant or takeaway meals and at department stores.

Those who withdrew super spent at least 43 per cent, or about $4000, of their first withdrawal within eight weeks of getting the cash. Spending rose by 129 per cent in the first fortnight of the scheme coming online.

Hamilton said he understood the case for allowing people to use their own money, but the super withdrawal policy had revealed the danger of doing so.

“I tend to lean towards free markets and individual choice, and indeed this was an explicit justification for the policy – giving people access ‘to their own money’,” he said.

“But this evidence is just so powerful that a large subset of the population has difficulty making sound decisions for their long-term future – it’s one of those cases where constraining people can make them better off. A sobering thought for an economist.”

Low-income, regional and remote parts of the country were the most likely to use the scheme.

The four highest withdrawal rates were in parts of the country where more than 80 per cent of residents are Indigenous Australians. They included the Far North Queensland areas of Northern Peninsula, Yarrabah, Palm Island and the Torres Strait Islands.

In a host of working-class suburbs clustered in and around the southern Brisbane electorate of Rankin, held by current Treasurer Jim Chalmers, two in five people accessed their super.

Across Sydney, around one in three people a string of suburbs in the south-west, starting in Ashcroft and moving north to Lethbridge Park in the city’s west, used their super. In Melbourne, similar access rates were recorded in the city’s north around Craigieburn, in the west around Melton and to the south-east around Cranbourne.

In more than a third of the 2200 communities tracked by the researchers, at least 20 per cent of people took money from their super. The lowest access rates were in Canberra – of the 20 suburbs or communities with the lowest access rate, 19 of them were in the ACT.

At the time of the program, the tax office and government came under fire for not properly vetting those applying to use their super. The ATO estimated that of the people it had received “intelligence” reports about, around 90 per cent were “more than likely” to have been eligible.

But the researchers estimate between 14 per cent and 18 per cent of the 2.6 million who used the scheme were not eligible.

A spokesperson for shadow treasurer Angus Taylor said the early super access policy was part of a suite of programs that kept Australians in work and training during the COVID-related lockdowns.

“More than 3 million Australians used this policy to access their money at a time when they really needed it,” they said.

“For the vast majority of these Australians, this policy was the lifeline that allowed them to ride out the worst of the COVID economic shock without having to borrow or default on existing loans.”

The spokesperson said the government should not use any review of the policy to change access rules around superannuation.

“The Coalition will consider any reviews on their merits and in full once they are published. It is important the government does not use an isolated policy response to a once-in-a-generation crisis to tighten already strict compassionate early access to superannuation,” they said.

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