Superannuation early release: why it shouldn’t happen again

Indians everywhere must be relieved that the Covid-19 variant originally linked to their home country was given a name change by the World Health Organisation.

In May Covid’s Indian variant quickly became known as the Delta variant, and now you’ve got to feel sorry for singing star Delta Goodrem.

As Delta destroys lives and livelihoods, Goodrem now calls herself “the artist formerly known as Delta”, and former Covid impacts we thought were history have roared back.

Billions of dollars are being handed out in disaster payments to people who have lost working hours through lockdowns, but one former Covid financial measure that should be left in the 2020 dustbin is the early release superannuation scheme.

The Federal Government allowed Australians to dig into their own super funds last year to help offset the pandemic’s financial strain, and 3.5 million people took up the offer to withdraw one or two tranches of up to $10,000 each.

In total more than $36 billion was withdrawn from super funds before the program ended in December – and much of it was spent at Aussie retailers that boomed last year.

Many nest eggs were wiped out by the superannuation early release scheme.

While $36 billion is a small proportion – just over 1 per cent – of Australia’s total superannuation savings of $3.1 trillion, the impact that those withdrawals will have on the life savings of many people is huge.

One $10,000 super withdrawal, if not put back quickly, can mean a saver loses more than $70,000 in compound interest over the following 30 years.

Many people who withdrew super last year either wiped out their account completely or left very little of their nest egg remaining. Before Covid, the average super balance of an Australian aged in their mid-20s was about $21,000 because they had few years in the workforce to build up savings through compulsory employer contributions.

People generally don’t start thinking about retirement savings until they are getting close to 40, so last year’s early release scheme was effectively free money in the minds of twenty-somethings and thirty-somethings.

Another early release scheme wouldn’t work as well today because many of those who would take it up already have shrunk their super fund balances to be in no position to give them any more cash.

Secondly, the Federal Government has shown it’s happy to multiply the nation’s debt pile to keep the economy running as smoothly as possible. It worked like a charm in 2020 and our national debt still remains affordable thanks to ultra-low interest rates.

Those low interest rates aren’t going higher any time soon, so it makes more sense for the government to use its own borrowings rather than force struggling households to dip into their own future savings once again.

Super is the best vehicle for building future wealth because of the low-tax paid by savers, and zero tax paid on their super once they reach age 60 and retire. This vehicle copped a few dents last year – mostly among drivers who can least afford them – and it shouldn’t be raided again, even if these lockdowns continue towards Christmas.

Delta has been a nasty surprise for Australians, but reaching retirement with a much smaller nest egg than was possible is potentially worse for many people.