COVID-19 super withdrawal scheme will have long-term economic impact: study
A study done on the early release of superannuation during COVID-19 raises the question of whether economic stability should be funded by those with lower future retirement balances or higher future taxes on the many.
The Institute of Economic Policy and the Elliot School of International Affairs conducted research on early pension withdrawal as a stimulus for the national economy and found Australia’s scheme of allowing people to withdraw their super during the pandemic will have grave future economic impacts.
The study was a collaboration between the Australian National University, George Washington University and Harvard University.
The researchers used administrative records covering super, tax, payroll, and welfare on Australia’s entire working-age population and a large panel of weekly bank transactions to come to their conclusions.
Around $38 billion was withdrawn from super accounts during the pandemic and the study found that five in six people withdrew as much as possible, nearly half withdrew in the first 10 days, and three quarters who had funds remaining after the first round withdrew again.
It stated that withdrawers raised spending by 129 per cent for the first two weeks and by 46 per cent over eight weeks, at which point spending returned to its pre-withdrawal level and the policy generated at least 0.8 per cent of GDP in direct additional spending, almost entirely within a four-month period.
Much of the money withdrawn from super was spent on highly discretionary items like take-away, gambling and buying furniture while bank transaction records indicate large amounts were withdrawn as cash.
Further estimates show that nearly a million Australians depleted their entire superannuation savings, and research from Industry Super Australia found that a 30-year-old who took $20,000 out of their superannuation will now be $80,000 worse off at retirement. The modelling also revealed that for $2.50 needed to be added to the aged pension for every $1 taken out during the scheme.
“Our findings have direct implications for the design of private retirement saving systems,” the authors stated.
“Under the super withdrawal program, the vast majority of those who were eligible chose not to access their retirement savings when given a seemingly one-off opportunity to do so, while the vast majority of those who did appeared to be driven by present bias.”
