The application period for early access to superannuation will be extended from 24 September to 31 December 2020 for individuals who are still financially impacted by COVID-19, and will add another $2.22 billion to the Treasury’s forward estimates.
Industry Super Australia has warned that policy must stabilise in the wake of the extension and that the government must proceed with the legislated increase to the superannuation guarantee.
“The extension of the scheme highlights how vital sticking to the legislated super rate rise (by 0.5 [of a percentage point] in 12 months’ time) will be for Australians to help rebuild their retirement balances,” ISA chief executive Bernie Dean told sister brand Investor Daily.
“We’ve [supported] the policy intent of this scheme to deliver money to those in need, but we’ve also seen how it can be misused — through troubling reports of fraud, significant amounts of ineligible applicants and evidence super is being used for highly discretionary spending — so, it is critical this is only a one-off extension in the deadline to make a claim.”
The extension also has the potential to further crystallise the impact on retirement savings, said Future Super co-founder Kirstin Hunter, with people forced to choose “between a liveable retirement and food on the table”.
“Extending the scheme means the government is enabling people who work in Australia to retire with no superannuation,” Ms Hunter told Investor Daily. “More than $25 billion has already been ripped from their retirements, and it’s harrowing to think we’re about to see even more damage.
“The long-term impact of a whole generation with no super doesn’t bear thinking about. Our future health, state retirement and welfare systems are going to be pushed to the limit and will break.”
The most recent APRA figures put early super withdrawals at $28 billion, slightly above the Treasury estimate of $27 billion. The Treasurer’s office was contacted for a revised estimate of withdrawals but did not respond before deadline.
Right Lane has warned that the fallout of the scheme could push smaller super funds into negative cash flow as they grapple with investment shocks and high unemployment that has seen contributions drop.
“Our research has found that increased withdrawals from the early release scheme alone could put 14 additional funds at risk of falling into a negative [cash flow] position in FY20,” said Abhishek Chhikara, associate principal at Right Lane Consulting. “That comes on top of the 40 funds who were already cash flow negative going into the COVID-19 crisis.”
Given we’ve got the $10,000 temporary early withdrawal scheme the extension to 31 December makes sense – JobKeeper will reduce at end September and many more employees may be let go, so early access to their super shouldn’t be denied them, and it gives others who already qualify longer to decide whether they need the withdrawal.
On the SG increase – it’s legislated but I’m not convinced – more disposable income for lower earners would be better (yes, I know the two aren’t automatically linked) and those who wish to increase their super more can always do salary sacrifice.