Younger workers are emptying their superannuation nest eggs in response to the government's early access scheme. Drawdown data for the first week of the scheme shows younger workers who have lost jobs or had hours reduced were among those draining their superannuation savings.
Large numbers of claims
Hostplus, which manages the superannuation of retail, hospitality, and tourism sector workers, had paid out an average of $7,134 to almost 85,000 claimants as of close of business Friday. Australia's largest superannuation fund, AustralianSuper, had paid an average of $7,650 to more than 85,000 members.
Hostplus and AustralianSuper have younger than average membership bases, according to the Australian Financial Review (AFR). Both superannuation funds registered average payouts lower than those of funds with more mature demographics. Lower average payouts indicate members may be withdrawing their entire available savings under the early access scheme, according to the AFR.
Industry funds hit harder
Industry super funds are being hit harder than bank-owned and retail funds under the scheme. According to the AFR, industry funds are receiving 3 times the redemption requests of bank-owned and retail funds. Industry funds tend to have a higher proportion of members in sectors impacted by the coronavirus pandemic.
The early access scheme
The early access scheme allows those financially impacted by the coronavirus pandemic to access superannuation early. Eligible citizens and permanent residents can apply to withdraw up to $10,000 tax-free in 2019-20 and a further $10,000 in 2020-21.
Temporary visa holders added to scheme
Treasury has confirmed it will allow temporary visa holders to draw on their superannuation. The decision is expected to see an additional 700,000 fund members withdraw around $2.5 billion from the superannuation system.
According to government estimates, 2.3 million superannuation members are expected to redeem $29.5 billion by the end of September. An average drawdown of $12,830 per member is expected, equating to $6,415 for each of the two instalments.
Warning for members accessing super
Accessing superannuation early may provide much-needed funds now, but it comes with a longer-term cost. Superannuation is a long term investment to provide for retirement, so withdrawing funds now may materially impact people's incomes come retirement.
As discussed in this Foolish article, a 25-year-old who withdraws $10,000 today could see their retirement balance fall by $200,000 as a result. This is based on a retirement age of 65 and an 8% annual return.
Each application for a redemption comes with a story of financial hardship. Withdrawing superannuation early should be one of the last resorts for those adversely financially impacted by coronavirus. For younger members withdrawing superannuation, the quality of their retirement may be dictated largely by their ability to 'make up' for funds withdrawn now.
