A superannuation industry body has called on the government to grant a one-off investment handout to those most affected by the COVID-19 recession.
The Australian Institute of Superannuation Trustees (AIST) has proposed to Treasury that a payment of up to $5,000 should be considered for Australians who withdrew their super early this year due to financial hardship.
The 3 million distressed Australians who had accessed their super early were already behind in their retirement savings, according to the group.
"Before making a withdrawal, members that made an early release application had on average 20% less than their peers that didn't make an early release application," stated AIST's federal budget submission.
"This indicates that they were more likely to be working in lower paid, less secure jobs than their age group peers."
Closing the gap
To close this widening "gap", AIST suggested the government could provide a one-off handout directly into the superannuation accounts of those who withdrew early.
"This contribution would be set at a quarter of the value of the super the member accessed and be capped at a maximum $5,000 contribution for those who accessed the full $20,000."
The handout could then be invested into shares through their superannuation accounts, or any other option that the fund provides.
The government earlier this year relaxed the financial hardship rules to allow early withdrawal of superannuation, to assist Australians impacted by the coronavirus downturn.
Australians then took to this enthusiastically, making 4 million early withdrawals so far, according to the Australian Prudential Regulation Authority.
Poverty now vs poverty later
But super experts are worried these people have taken a substantial hit to their retirement savings.
"The early access to super scheme has forced many Australians to choose between poverty now or poverty in retirement," stated AIST.
"Rather than requiring those who can least afford it to compound their financial insecurity, the government could have borrowed at interest rates close to zero to support more Australians. Instead individuals were forced to access their super and forgo returns of at least 5 to 7% in annual interest over the long term."
Other recommendations include:
- Increasing the government co-contribution rate and threshold
- The removal of the $450 monthly wage minimum for mandatory superannuation
AIST represents 50 profit-to-member superannuation funds that collectively hold $1.5 trillion of retirement investments.
