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COVID-19 early release scheme delivered, but at a cost to retirement
The Association of Superannuation Funds of Australia (ASFA) has released new analysis illustrating the impact of the COVID-19 early release of superannuation (ERS) scheme on both individuals and superannuation funds.
ASFA deputy chief executive, Glen McCrea, said the COVID-19 early release of superannuation scheme was a success in terms of making a large number of payments in a very short period of time to those Australians in need, but that it did not come without problems.
"Young people, women, single parents and the unemployed paid a high price in terms of the cost to their retirement savings,” he said.
The 2020 ERS arrangements were unprecedented in both scope and size. Despite needing to set up new systems at short notice, ASFA analysis concluded that Australian superannuation funds coped well. In particular, the analysis found:
- funds were able to make $38 billion in payments at a time when financial markets were under stress;
- funds were able to process 4.9 million applications for payments in a very short time frame even though many fund and administrator staff were affected by COVID-19 lockdowns;
- instances of fraud were relatively uncommon amongst the millions of applications made and no fund members were left out of pocket due to third party fraud.
Many Australians and temporary residents faced considerable financial stress due to COVID-19 impacts on the economy and employment. However, ERS applicants paid a relatively high price for the monies released, both in terms of the impact on eventual retirement savings and in taking a benefit when investment markets were temporarily well down. ASFA’s key findings include:
- around 3 million Australians applied for early release, many of them making two applications;
- nearly 1 million Australians closed or largely cleaned out their superannuation account as a result of early release payments;
- the cleaning out of accounts was more prevalent for women, single parents and the unemployed;
- for a 30-year-old, taking out $20,000 in 2020 results in $43,000 less in retirement savings at age 67 (measured in today’s dollars and assuming no catchup contributions are made).
"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’s important that we recognise the detrimental impact that this has had for the retirement savings of millions of Australians," concluded McCrea.
"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.”
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