Coronavirus: Superannuation ‘success’ comes with a $42bn headache

The success of the early superannuation scheme has forced Treasury to hugely upgrade its estimated cost.

The Australian Taxation Office has reported a 35 per cent spike in self-managed super fund ‘commencements’ in March.

The success of the early superannuation scheme has forced Treasury to hugely upgrade its estimated cost but at least new data shows most people are being responsible with the funds that were once tucked inside a tax-protected nest egg.

Moreover, as the depths of the pandemic crisis have evolved, it is clear there are situations where using former superannuation savings can make sense on even the strictest investment criteria, such as paying off credit card bills

The latest figures from Treasury suggest the majority of the 2.6 million people tapping the schemes have used their super withdrawals to pay immediate expenses, including debts, while around a third have used it to add to savings.

Yet there is a price in everything.

For the millions who have “tapped” their super accounts, there is the lost opportunity to build wealth for old age.

And for the government, there is the loss of a generally accepted principle that money for retirement should not be touched under any ­circumstance.

There is also the ongoing concern that we can now expect $41.9bn will be taken out of super this year at the same time as ­people receive Jobkeeper payments and defer their mortgages: earlier Treasury estimates had the cost of the early super scheme much lower at $29.5bn.

Put simply, the scheme will not unduly stress the super system — only 1.5 per cent of total ­assets have been removed.

Yet those numbers conceal the fact that more than half a million Australians have now taken out every penny that they had in super accounts.

Anecdotal evidence from fin­ancial advisers had already indicated that most people tapping the scheme were doing so as a precaution — the logic being to take the money out while it was possible and then figure out what to do with it.

Unfortunately, along with irresponsible spending on areas such as gambling, there are more sophisticated abuses of early super access occurring inside the system.

The Australian Taxation Office has reported a 35 per cent spike in self-managed super fund “commencements” in March, ­indicating moves by ineligible ­investors to withdraw money.

With a recent Fidelity Inter­national survey suggesting one in four Australians could ultimately use the scheme before it ends in December, the question now is whether the new $42bn estimate from Treasury will be high enough?