Early superannuation access sets a dangerous precedent

David Atkin, chief executive of construction industry superannuation fund Cbus, at their office in Melbourne. Picture: David Geraghty.

Cbus chief executive David Atkin was right in warning on Tuesday that superannuation should not be used as an ATM for every financial need of its members.

While it seems OK to allow people to draw down their super in times of financial hardship — particularly during the current COVID-19 economic downturn — Atkin warns that continued easier conditions for early access will defeat the whole purpose of super, which is to lock up savings for retirement.

The chief executive of the construction industry super fund is all too aware that the construction industry is headed for a severe downturn in the wake of the COVID-19 crisis, which could well see more building workers looking to access their super in the second stage of the early access super system, which begins on Wednesday.

While some super funds are hoping that an upturn in their industry — in areas such as hospitality, where restaurants and cafes are reopening — could see fewer workers access their super funds in the second wave, the true drain on super from July 1 is far from clear.

While some 2.6 million Australians have applied to access their superannuation in the months leading up to the end of the financial year on Tuesday, with total drawdowns of some $18bn, it is impossible to estimate how much will be drawn down in the next stage.

Expectations are that the second wave of drawdowns will only be 70 per cent of the pre-June 30 drawdowns, assuming that many people on low incomes with low super balances have run them down already.

This is also assuming that with the opening up of the economy some jobs will reappear, taking the financial pressure off them.

But the wildcard for the super industry is how many workers will be laid off in future (particularly given the new fears driven by the outbreak in Victoria) or fear they will be laid off as the economy slows.

Many of those on the JobKeeper program fear that their income could fall off a cliff after it ends in September.

The danger for the super industry is that if easier access conditions are continued or not well monitored, they be seen as a handy ATM to draw down funds for all events of future hardship.

Another severe bushfire season? Allow those affected to draw down their super. People affected by severe flooding or cyclones? Allow them to draw down their super. The list goes on.

Allowing early access to super simply means that there will be no money, or a lot less money, for people — sadly the more vulnerable in society — once they get to retirement age.

As super balances are eroded under the early access scheme, there will be increased pressure on the federal government to stick with its promises to increase the compulsory super guarantee levy to 12 per cent of wages.

While this is official policy, it is being opposed by some members of parliament who argue that it will be bad for the economy or bad for workers in need of money to spend.

Australia already has a unique compulsory superannuation system, with some $3 trillion in assets, which has played a critical role in helping the economy through the global financial crisis of 2008 and 2009 and has played a key role in supporting Australian companies that have sought to access funding from shareholders via rights issues this year.

All this at a time the Morrison government is urging super funds to back the Australian economy by investing in key infrastructure projects to help underwrite the COVID-19 hit economy.

But Australia cannot have it both ways.

We can’t allow people to access their super for every known form of financial hardship, and then expect to have a strong pool of domestic capital to help bolster local companies and invest in major infrastructure projects.

As the federal government also takes a tougher line on foreign investment in Australia, the domestic super fund industry has played a key role in asset recycling and ensuring that critical infrastructure assets such as electricity companies, healthcare companies and ports are kept largely in Australian hands.

The federal government set a precedent this year with the early super access scheme for COVID-19.

But the fear in the super industry is that this becomes the thin edge of the wedge to gradually erode the system from below.

Atkin was speaking at a forum on superannuation organised by the Queensland Investment Corporation (QIC) which is involved with the Queensland government’s move to ensure that Virgin airlines retains its headquarters in Brisbane under new ownership.

Other speakers at the forum warned that the early release super scheme is already affecting the investment strategies of super funds, as they need to maintain more cash on hand to pay out the next wave of early drawdowns.

Super funds have done well in Australia as they have been able to make long-term investments. But the future now is a lot less certain.

Using super funds as an ATM has real dangers. It is a sugar hit which helps the most vulnerable in society through a short-term problem, leaving them with much reduced retirement balances.

At the least the federal government needs to consider the arguments of the Financial Services Council to look at ways to help those people who have drawn down their super to be able to put some money back in when their fortunes recover.

As it battles through the COVID-19 economic crisis, the worthwhile but also panic-driven responses announced earlier this year now need closer scrutiny for their long-term implications.