A new academic study has confirmed that the Covid-era early release of super scheme – which allowed largely unfettered access to retirement savings - was a mistake that should never be repeated.
While the Covid pandemic was an uncertain economic time we can see now that allowing Australians to withdraw up to $20,000 with limited restrictions will have long term impacts that will see individual balances dwindle and the taxpayer forced to pay billions more in future aged pension costs.
The ANU and George Washington University study which examined bank transactions during the 2020 scheme found large amounts of the $38 billion withdrawn from super were spent on highly discretionary items like take-away, gambling and buying furniture1.
Reports today reveal large amounts were also withdrawn as cash and additional spending rose in the first few weeks of the scheme on short-term items.
Many had little choice but to access super, as the scheme was announced before other government supports like JobKeeper, making many Australians believe they had to raid their retirement savings to ride out the COVID economic shock.
It is estimated up to 1 million Australians wiped out their entire super savings. Industry Super Australia estimates a 30-year-old who took out $20,000 would be $80,000 worse off at retirement.
And ISA modelling shows there are long-term impacts for the taxpayer – as for every $1 taken out during the scheme adds up to $2.50 to the aged pension – a bill every Australian could pay through taxes.
This scheme reinforces the need to legislate an Objective of Super that puts the concept of preservation at its core.
If super's purpose was written into law, it may have prevented the previous government from immediately opening-up super when stimulus was needed during the COVID economic downturn.
Super should only be for retirement other than in circumstances that match the existing hardship provisions - cases of extreme financial hardship or to pay for life saving medical treatment.
Comments attributable to Industry Super Australia chief executive Bernie Dean:
"The impact of encouraging people to raid their super will be another type of long COVID, leaving many worse off in retirement and that means a bigger pension bill for everyone."
"People faced a wicked choice between sacrificing their retirement savings and bailing themselves out during the early stages of the COVID pandemic. No government should ever force Australians to make that choice again."
"This study just reinforces why our federal politicians should make a law saying that super is for people's retirement and can only be accessed in dire personal circumstances".
