Opinion article

The dangers of early access to superannuation

CEDA Senior Economist, Gabriela D'Souza, reflects on the dangers of allowing people to access superannuation in crisis situations and discusses the likely consequences of the government's recent COVID-19 superannuation withdrawal policy.

Two weeks is a long time in politics. With the current COVID-19 pandemic, policy making is moving at a pace not previously seen in recent Australian history. A little over a fortnight ago, the government announced its first stimulus measure, a scheme that would support apprenticeships, at a price tag of $1.7 billion. In three weeks' time that measure was eclipsed by the government’s wage subsidy program for employees of companies affected by the downturn. The government has not left many stones unturned in its quest for ways to provide short term liquidity supports to businesses and payments to those who have lost their jobs because of business shutdowns.

Changes to superannuation policy have been one way in which governments are trying to encourage Australians to support themselves. Under this scheme, those who have lost more than 20 per cent of their income since January 2020 can apply to the ATO to withdraw up to $10,000 a year over two years.

Australia’s super system

Australia's superannuation system is home to the retirement savings of 16 million Australians totalling almost three trillion dollars as at June 2019. Several changes have been made to the superannuation system since its inception: the rates of superannuation guarantee (SG) have been toyed with, MySuper was changed in 2014 and 2017, and changes to the way default super accounts are administered are currently being considered by the Treasury retirement incomes review.

Time and again we’ve seen suggestions that the superannuation system be redeployed to solve other liquidity issues. We've even seen recommendations from various bodies to allow for super to be used towards a first home deposit. More recently, the PM suggested that the superannuation funds should invest in Virgin Airlines to support them through the COVID-19 crisis.

Policymakers should think more carefully before proposing super as a solution to our problems. The announcement on 22 March 2020 that will allow affected workers to draw on their super will have far reaching consequences for Australians and super funds. Some funds are likely to be more exposed to the consequences of this decision than others. For example, Hostplus is the default super fund for many who work in retail and accommodation and food services which is an industry that will be heavily affected by the downturn in economic activity. The industry also employs a number of casual workers who will have seen their incomes diminish since the outbreak.


60 per cent of Hostplus members are between 25 and 34 or under 25 years old. The average balance is estimated to be around $3960 for those under 25, and about $21,000 for those aged 25-34. If every single person in these age groups withdrew $10,000, or the entirety of the average balance if it is under $10,000, it is estimated that there would be an outflow of about $5.2 billion or approximately 12 per cent of the total funds under management.

The ATO has recently reported that it received approximately 900,000 registrations of interest for the scheme, with 456,000 applications approved by the ATO as of 22 April 2020. Cashing out super is an expensive ask for any super fund – most of their funds under management are held in non-cash assets and transitioning to cash to make good on people’s requests could have a myriad of unintended consequences.

Firstly, it will mean that superannuation funds will have to offload assets at the bottom of the market. This will have an impact on others in the fund as funds revise their portfolios and negotiate out of riskier asset classes at the bottom of the market. This will also have a negative impact on those taking money out of their super as they cash in on assets at a trough in the market.

Second, it could result in pressure on consumers under duress to make poor financial decisions. For example, we’ve seen increasing allegations of real estate agents querying renters’ financial decisions and encouraging them to avail of the government’s superannuation scheme. A practice that has now been called out by ASIC as potentially in breach of financial advice laws.

Thirdly, those who will be forced to rely on their super are already some of the most vulnerable in our community. This includes temporary migrants and casual workers, who are more likely to require the short-term liquidity fix. This is also likely to exacerbate structural issues within our superannuation system, such as the fact that women on average retire with 47 per cent less than men in retirement.

Even if these vulnerable people eventually end up on the age pension, public policymakers should strongly consider the welfare effects of vulnerable folks dipping into their retirement savings for short term liquidity issues.

With a total spend of almost $200 billion on temporary support measures for businesses and individuals over the last few months, there is no doubt that the government made the right call in loosening the budget purse strings.

However, at a cost of $1.15 billion this move is likely to leave parts of the superannuation system worse off as people rush to secure their finances in a tough market. There is no telling what further support individuals and businesses may need as the COVID-19 crisis continues, but further support may yet be necessary for vulnerable groups excluded from direct support payments to date.
About the authors

Gabriela D'Souza

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Gabriela D’Souza joined CEDA as Senior Economist in 2018 with eight years of experience in public policy. She has worked at some of Australia's most well-known and respected public policy think tanks and economics research centres. She has conducted research on a wide range of public policy issues including education, immigration, multidimensional disadvantage, and area-based measures of exclusion. Gabriela has a master’s degree in economics from Monash University and is an affiliate of Monash University’s Department of Business Statistics and Econometrics.

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