Early super withdrawers ‘won’t lose much in the long run’, says Grattan Institute

The retirement incomes of individuals who have drawn on their superannuation early shouldn’t fall much, says the Grattan Institute.

Australian Bureau of Statistics survey data has suggest­ed that 60 per cent of those ­accessing superannuation early had used it to meet day-to-day expenses.

The retirement incomes of individuals who have drawn on their superannuation early shouldn’t fall much, says the Grattan Institute, undermining calls to lift the compulsory rate of super saving to 12 per cent to make up for the early withdrawals.

A 35-year-old who withdrew $20,000 from their superannuation fund this year, or the full amount allowed under the government’s early release scheme enacted to people through the recession, would see their retirement income fall by about $900 a year, according to analysis by Grattan.

“Someone earning a median wage of about $60,000 today can expect total super income through retirement to fall by about $80,000 in today’s dollars,” said Brendan Coates, a research fellow at Grattan. “But their total retirement income would fall by only $24,000, or about $900 each year, because their lower super balance at retirement would be largely offset by larger pension payments.”

That would see their replacement rate — retirement income as a share of pre-retirement income — fall from 89 per cent to 88 per cent, which is “still well above the 70 per cent benchmark used by the OECD and others”, he said.

The analysis follows a large upward revision from the government, released last week, in the total sum expected to be withdrawn under the scheme from $29.5bn when the policy was announced in March to $41.9bn.

The government provided evidence last week that almost 60 per cent of withdrawals by value had been saved or not spent. “The government believes Australians in fin­ancial hardship as a result of the coronavirus should be given the opportunity to access their own money in superannuation to help them get to the other side of the crisis,” Josh Frydenberg said.

Almost three million people have applied to withdraw money early, including more than 500,000 who have cleared out their super accounts entirely, which critics and the super industry say is undermining retirement incomes.

Australian Bureau of Statistics survey data has suggest­ed that 60 per cent of those ­accessing superannuation early had used it to meet day-to-day expenses — including debt repayment — while a further 36 per cent had added the money to their savings.

Labor spokesman for superannuation Stephen Jones said the ABS finding was based on a ­sample size of 47, with a large margin of error. “That’s a statistical howler,” he told The Australian.

The Grattan analysis will fuel debate about a legislated increase in the superannuation guarantee, which will increase to 10 per cent on July 1 next year on current law. “Before COVID-19, there were good reasons to abandon the planned increases in compulsory super. COVID-19 is just one more reason,” Mr Coates said.

“Higher compulsory super would do little to boost the retirement incomes of many Australians, while draining government tax revenues and widening the gender gap in retirement incomes,” he added.

The government is yet to release the final report of the Retirement Income Review, handed to the Treasury last week.