Almost a million Australians had their super fund accounts closed or almost cleaned out as a result of the Morrison government’s early release of super fund scheme at the height of the Covid-19 pandemic in 2020, according to a new report by the Association of Super Funds of Australia (ASFA).
The report shows that a total of $37.8 billion was paid out to more than three million people in 2020 as a result of the Morrison government’s unprecedented early release scheme in response to the economic strains of the crisis.
“The early release scheme disproportionately impacted our members, with thirteen per cent of those who made a claim emptying their accounts and many more left with a balance of less than $1,000, putting them at risk of being left uninsured,” said Justin Arter, Cbus Super chief executive.
“The long-term impacts of the scheme are concerning with many members exiting the pandemic years at ground zero when it comes to their retirement security.”
The government allowed people to take out two tranches of up to $10,000 each from their super in 2020, provided they met certain financial hardship criteria including having their working hours reduced or becoming unemployed as a result of the pandemic.
The move put unprecedented liquidity pressure on Australian superfunds at a time when financial markets were at a low, but the report says the funds managed to cope with the demands of more than 4.55 million separate applications. Some members made two withdrawals during the year.
The report shows that AustralianSuper, the largest super fund in the country, paid out the largest amount – a total of $5 billion in response to more than 650,000 applications. Queensland-based Sunsuper (now Australian Retail Trust), retail industry fund REST and hospitality industry fund Hostplus each paid out more than $3 billion in response to early release requests.
Construction industry fund Cbus paid out $2.3 billion with hospitality industry fund HESTA and MLC Super paying out more than $1 billion each.
The report finds that applicants for the early release scheme “paid a relatively high price” for the release of their money in terms of the impact on their eventual retirement savings and taking out their super at a time when financial markets were down.
“Nearly a million Australians closed or largely cleaned out their super accounts as a result of the early release payments,” the report said and this was more prevalent for women, single parents and the unemployed.
ASFA estimates that a 30 year old taking out $20,000 from their super in 2020 would have $43,000 less in their retirement savings at age 67.
“While superannuation was able to do much of the heavy lifting by distributing payments to people quickly in the early days of the Covid-19 pandemic, it is important that we recognise the detrimental impact that this has had for the retirement savings for millions of Australians,” ASFA deputy chief executive Glen McCrea said releasing the report.
“During the Covid-19 pandemic, Hostplus was privileged to be there for its members by providing access to their superannuation at a time when they may have needed it most,” Hostplus chief executive officer David Elia, told Investment Magazine.
“Although we understand that this access played a vital role in providing relief for many, we are now seeing the detrimental impacts on the projected retirement balances of our members, particularly young people and women aligned with the ASFA research.”
“Hostplus, alongside our industry partners, will continue to educate our members on the importance of superannuation, and the long-term principles it employs to help provide and protect a dignified retirement for all Australians.”
The superannuation industry did not object to the early release scheme but became increasingly concerned at moves by the Morrison government to use super as a cash cow for other policy ideas such as its election promise earlier this year to allow first home buyers early access to super for their deposits.
The move prompted increasing calls for the Federal government to pass legislation specifically codifying that the purpose of super was for retirement savings. This would include a specific emphasis on the importance of the preservation of super fund savings until retirement and not being opened to a range of early access options.
“Cbus supports moves to enshrine the purpose of superannuation to protect our members and future generations from policy on the run that leaves them worse off,” said Cbus’ Arter.
In an interview to coincide with the 30 years of compulsory superannuation in June this year, former prime minister Paul Keating argued that preserving superannuation savings for retirement was an essential part of the system he had helped set up in the early nineties.
The system provides tax benefits as a quid pro quo for people agreeing to invest their funds and not access them until retirement.
He said preservation was also an essential part of the system in Australia which allows for individuals to run their own superannuation accounts as opposed to other countries where compulsory pension savings were run by the government.
“It’s more important than ever that we legislate the objective of super to ensure that Australians’ savings are preserved to support a dignified lifestyle in retirement,” ASFA’s McCrea said.
The report noted that superfunds in Australia had “strong liquidity arrangements” which “were able to cope successfully with a large number of unexpected benefit payments at a time when financial markets were under stress”.
“Funds were able to process applications for payments in a very short time frame even though many fund and administrative staff were affected by the lockdowns,” the report said.
The report noted that while some Australians applied for early release of their super who did not meet the eligibility criteria, there was a low rate of third party fraud which, it says, indicated that “fund processes are robust”.
The report noted that the super funds have not levied their members to pay for the extra administrative costs of the early release scheme.
It said 44 per cent of applications for early release were made by people under 35 despite the fact that they only make up 41 per cent of wage and salary earnings.
Some 57 per cent of the applications were made by males, well above the 51 per cent of wage and salary earnings who are men.
Regionally, it noted that Queensland had a higher incidence of applications than other states, speculating that the downturn in the tourism industry in the state may have been a factor in the demand.
The report says 163,000 super accounts were completely wiped out as a result of the early release payments and more than a million people who took early release of their super ended up with $1,000 or less in their accounts after the payouts.
Early release applications by top 10 funds involved
|Fund||Total applications||Initial||Repeat||Total paid ($ billion)||Total accounts in the fund 2020 (million)|
|MLC Super Fund||171,099||120,189||50,910||1.3||1.121|
|Retirement Portfolio Service||141,903||102,522||39,381||1.1||0.848|
|Super Directions Fund||130,436||77,525||52,911||1.1||0.901|