ISA claims hundreds of thousands have wiped out their retirement balances

2 July 2020

Hundreds of thousands of young Australians have wiped out their retirement balances under the government’s early release of super scheme, according to Industry Super Australia (ISA).

In a new analysis of the early release scheme released today, ISA said it estimated 395,000 people aged under 35 had eroded their superannuation balances, justifying fears the scheme could lead to a future generation left languishing on the pension. 

“ISA estimates that about 480,000 Australians across all age groups could have wiped out their super, even before the second tranche opens,” it said. “In March the government broke open super’s preservation rules and allowed Australians who had lost their jobs or had hours reduced to access $10,000 in super and a further $10,000 from 1 July.”

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ISA said that it had initiated the research following “calls from a noisy group of backbench MPs to dump the incremental and legislated increase to the super rate from 9.5 per cent to 12 per cent by 2025”.

“But if those MPs get their way more workers would be more reliant on the aged pension - a bill everyone pays through higher taxes,” ISA said.

ISA said its analysis was based on ATO data on the proportions by age of those with accounts below $10,000, and Treasury statistics on the age distribution of early release. Estimates have been updated to the 14 June APRA totals.

“On average about 15% of Australian workers have accessed their super early. Three states were above the national average - Queensland at 20%, Northern Territory 19% and Western Australia 16%.

ISA said industry Funds had supported this scheme’s intent to get cash to those in dire financial need and had already helped more than 1.4 million Australians tap into their super but noted there had been “troubling reports of super being used to gamble, buy alcohol or other types of discretionary spending”.

“As the second tranche of the early release scheme opens ISA is renewing calls for members to only access their super as a last resort. A 25-year-old taking out $10,000 now could have $49,000 less in retirement, a 35-year-old could have lost up to $34,000 and a 45-year-old up to $23,000.” 

“The government estimated 1.65 million would take out $27 billion from super, but already 2.1 million have taken out at least $15 billion and it appears likely demand will far surpass forecasts. Despite the greater numbers, Industry Funds have prepared to deal with the demands of this scheme.”

 “The Prime Minister and Treasurer must stick by their promise to increase the super rate because its critical to helping these people rebuild savings they’ve wiped out, and avoid tax hikes on working people to prop up more people drawing a full pension.”

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Nothing like a bit of self interest from the union funds. People who have lost their job and are experiencing financial hardship need access to their money but because it hurts ISA's FUM they want everyone to think of it as a last resort.

Yet more pearls of wisdom from the ISA‘s ‘tut-tut’ department. The ‘power of compound interest’ lecture is fine if you have a job, and you can pay your bills on time, and you have a comfortable super balance. Otherwise I can’t think of a better justification to access some of your super early. This is an emergency folks.

So what?

Today quite some retirees adjust the amounts they have at retirement to qualify for a part pension and if they do not own a home for pensioner rental assistance. In instances some over capitalise and upsize their home, take frequent holidays, annually gift the allowable amount. In fact there are very few who fund their own retirement without government tax payer funded assistance. Those who do save are then under attack by Labor with respect to dividend imputation credits. Little does a Labor realise that Superannuation Retirement Funds do not pay any tax whatsoever. So to be fair if Labor intend attacking those who have diligently saved the same should apply to all Superannuation Retirement Funds.
In fact I would go to the extent that all Superannuation Accumulation Funds be taxed annually on an accruals basis then they would be forced to value their large illiquid holdings every year.

What about "default super" is managed by the Future Fund for the future pension payments of people. This fund has performed very well. Change the 9.5% super contribution to a flat tax, as this collection system already exists. Then pay everyone a government pension from the future fund at age 67. Stops people taking all their money out of super on retirement, stops godd/bad super fund arguments, illegal early reslease schemes etc. If people want to save additional money they still could put additiaonal money into a normal super fund or SMSF.

So, if predominately this was done by sub 35yr olds, they have 30plus years to accumulate a reasonable balance and presumably their incomes will be higher in this period, so the 9.5% will be more substantial.
Additionally at the back end of their careers, when they are best able to afford it, they will be able to make additional contributions to make up any shortfall, something we see regularly on the advice side.
This is their money - not the ISA's - if the consumer needs it to meet a current financial crisis then they should have access to it.
As far as increasing the SG conts via gouging the small businesses who have to pay it for their employees - No. 9.5% is enough and statistically will provide a very sound benefit for most PAYG employees. Any pay rises should be in the employees pocket to spend and improve their standard of living - as well as helping consumption in the economy.

This week, Cath Bowtell confirmed the level of " advice" accessed in Industry Super funds is predominantly in the pre-retiree and retiree age brackets.
This means that many ISA members from possibly 18 to say 55 yrs do not voluntarily access advice.
I believe statistics have shown that super members who do have an adviser have not accessed early super release nearly as much when compared to those who do not have an adviser.
So, if the Industry Funds have a very large cohort of younger members with lower super balances who do not seek or receive advice then it stands that either through necessity or simply because the money is available, they will access these funds and spend it on whatever they wish.
This is the trade off of having a large percentage of disengaged members who do not seek advice.
When the opportunity is presented, the natural response is to gain a benefit without consideration for the future impact.

Could this any more transparent.. the only people silly enough not see it are their members...

Work backwards and the notion that nearly 400,000 people under 35 eroded their super by withdrawing up to $10,000 seem a little dubious. Most people in their 30s have been in the workforce and putting 9.0-9.5% of their salary into super for 10-15 years so they should have much more than $10k. It only takes a little over 2 years on $50k to accumulate $10k. Have people just cleaned out dormant and small accounts rather than touching their main fund?

To me it seem quite a rational decision as it will allow them to maximise the Age Pension safety net at retirement. There is limited merit in accumulating super between $300-$800k given the taper rate. The Age Pension has a far superior payout NPV than most will be able to save

What utter rubbish by ISA with their self agenda in full view. Don't worry ISA just increase your member fees for..... further fee for no service or better still, why not build more commercial/residential buildings that ISA members are not fully aware that they are paying for or costs associated with, with very little return and classed as unlisted. Sounds like industry funds are readying and rolling out their future performance excuses, the powder keg has run dry, no more are they able to use general reserves to inflate performance. Advisers are only asking for a level playing field and not political garbage. If industry funds really wanted to act in members best interest they would allow non industry fund advisers to charge their fee to the superfund irrespective of industry/retail funds without the need to jump through hoops or being denied due to the funds restrictions.

The ISA and super Funds like REST whining about not being able to withhold people's hard-earned money against their will during a time of crisis is just infuriating and pathetic. It's OUR money, you cretins, and we'll spend it as recklessly and frivolously as we damn well please. Oh no, I might have less disposable income in forty years, oh heavens whatever will I do when I'm 75, best I just follow the advice of the people holding my money for me, who assure me that my money is better left in their far more capable hands. Seriously go to hell.

Quite frankly, if it is largely the young people accessing their super now, and they are the same ones disrespecting social distancing and other health rules, none of they or their age group will live long enough to retire.

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