The Impact of Super Withdrawals
Australians are affected by COVID-19 in different ways, with some people doing fine economically and others relying heavily on government support just to bring food onto the table. Along with the huge numbers that define the JobKeeper and JobSeeker support packages, desperate times have seen around 2.7 million early withdrawals from superannuation accounts. While this money has assisted many and helped to keep the economy ticking over, borrowing money from your own future could have serious impacts in the years ahead.
Early withdrawals to superannuation continue to rise steadily as the pandemic continues and some people double-dip in the new financial year. While the $30 billion withdrawn so far is only around 1% of Australia's total super savings, some people are likely to feel the decline in future super earnings much more than most. Labor has warned of a "run" on super accounts, with around half a million people draining their balances completely. While there is a maximum $20,000 early withdrawal limit, this is a significant sum for a large percentage of the population who are already feeling the pinch.
With so many people losing their jobs or faced with failing businesses, Australians need money more than ever. Industry super fund HESTA had more than 47,000 early super withdrawal applications in the first two weeks of July alone. Labor's Stephen Jones had reports of another fund receiving 50,000 early withdrawal applications in just four days, with the opposition spokesman for financial services saying "I think we've had a significant run, well in excess of [the $29 billion] the Government anticipated... I think we'll blow that easily. Many people are estimating it'll head closer to $40 billion, I think that's accurate. That's of great concern."
According to Assistant Minister for Superannuation and Financial Services, Jane Hume, the Tax Office has already approved almost $30 billion of super withdrawals. While obviously needed in many cases, some Australians will face a different kind of future with tens of billions of dollars drained from the superannuation industry. The harsh reality is that $20,000 of super released now could very well end up being the most expensive money people will ever get their hands on due to the opportunity cost of compound interest. $20,000 today could end up being hundreds of thousands of dollar in 35 or 40 years' time, with people advised only to withdraw funds as a last resort.
According to Equity Economics' lead economist Angela Jackson, everyday Aussies are not the only ones likely to be affected, with early super withdrawal also presenting a headache for super funds and the Government. "In terms of the reserves of the super funds, obviously they're not going to be tapping into long-term investments at this point," she said, adding "They're going to be tapping into cash reserves and short-term investments, money that would have been available to make those long-term investments that involve, generally, partnering with the Government on big infrastructure projects. They won't have those funds, or as much available, over the next period."