Coronavirus: Hardship scheme a $36bn hit to superannuation

Three and half million Australians withdrew $36.4bn from their super over the eight-month life of the government’s COVID early release scheme.

Superannuation Minister Jane Hume says the early release of super scheme ‘was the right policy at the right time’. Picture: Sarah Matray

Three and a half million Australians withdrew $36.4bn from their super over the eight-month life of the government’s COVID early release scheme, APRA data shows, nearly $10bn more than the Morrison government had ­initially expected.

The COVID-19 early release of super program, which ended on December 31, was the most controversial of the Morrison government’s major support measures. It allowed eligible workers to pull, with no requirement for evidence, up to $20,000 from their savings in two withdrawals, and was taken up with enthusiasm by households, despite concern from industry that it would leave many with significantly less in retirement.

Andrew Charlton, director of economic advisers AlphaBeta, said it was “incredibly effective stimulus, paid for by individuals”. He argued it had an even bigger impact on household incomes than the JobKeeper program, the majority of which he said had been swallowed up by recipient companies to boost their bottom lines, rather than providing direct support to employees.

Dr Charlton said the early release cash was “spent very, very quickly”, and more than two thirds of it on discretionary items.

“It’s a massive amount of money and has been very, very ­effective in stimulating the economy,” he said. “The question is whether this was the right way to assist people in hardship.

“More than half who withdrew money had no reduction in income after government transfers, which means more than half of those who took money out didn’t need it.”

Superannuation Minister Jane Hume, however, described the early release measure as “an overwhelming success” that had provided “a lifeline in a period of financial uncertainty”.

“The overwhelming majority of Australians made sensible choices with their savings like paying down their mortgages, paying down debt and paying off credit cards,” Senator Hume said.

Opposition financial services spokesman Stephen Jones accused the government of misrepresenting the purpose of the scheme as a measure of last resort, which instead became a free-for-all with few checks and balances.

“Let’s call it for what it is: privatised stimulus, with great long-term damage to retirement income savings,” Mr Jones said.

The APRA data, however, shows funds with membership who are most likely to be hurt by the pandemic reported the ­highest proportion of applications.

The Qantas retirement fund and hospitality fund Hostplus, for example, recorded some of the highest rates of applications, with up to one in four members applying for the scheme, according to Richard Dunn of super consulting firm Rice Warner.

Mr Dunn agreed that the policy had come at a cost, and that by dipping into super “you’re solving today’s problems by making tomorrow’s problems worse”.

How much worse has been a point of contention. Industry Super Australia said a 30-year-old on the median income who withdrew $20,000 would be $41,000 worse off in retirement — even after receiving $50,000 more from the pension in retirement as a result of having a lower super balance.

The end of the early release scheme also coincided with a debate around whether the Morrison government should follow through on a legislated increase in the compulsory rate of super contributions, starting with a lift from 9.5 per cent to 10 per cent on July 1.

ISA chief executive Bernie Dean said after up to 725,000 effectively drained their retirement accounts, it was “vital the super rate goes up … to help (workers) make back what they have lost”.

“It would be a cruel blow to these workers if a group of ­backbench MPs, who all pocket 15 per cent, got their way and the government cut super,” Mr Dean said.

There have also been concerns that the scheme would open the door for further raids on the super system, with some Coalition MPs agitating for letting first-home buyers dip into their retirement accounts to help buy a property.

The APRA data shows the average payment was $7638. Of the 3.5 million who withdrew money, 1.4 million did it twice.