Low paid, young Australians to bear the brunt of an estimated $100 billion COVID super gap at retirement
Low paid, young Australians will bear the brunt of an estimated $100 billion* shortfall in retirement savings, according to analysis by Mercer and the Australian Institute of Superannuation Trustees (AIST).
AIST’s own analysis of aggregated fund data has revealed that prior to 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, with younger Australians disproportionately represented among scheme applicants.
One in five Australians aged between 25 and 34 age withdrew super. Under 35s collectively took out 40% of the total amount withdrawn. Applicants in this age group on average withdrew at least a third of their total super balance in the first tranche and it is estimated up to that another 15% of members in this cohort completely drained their super savings before 30 June. Women withdrew more super than men on average, accounting for a higher portion of their already lower super balances.
AIST CEO Eva Scheerlinck said the burden of the $100 billion COVID super gap – a finding from AIST-commissioned Mercer research – would be borne by those who could least afford it – women, low paid workers and those who have insecure jobs.
“The early release scheme unfortunately forced many people to choose between poverty now or poverty in retirement,” she said. “These vulnerable Australians are unlikely to recover from this without targeted policy intervention.”
Ms Scheerlinck said the projected retirement savings gap of $100 billion represented a significant shortfall that would need to be funded by future governments and Australian taxpayers in the form of higher pension payment.
“Given the difference compound interest makes, a withdrawal made at a younger age has a big impact on retirement balances of this generation,” Ms Scheerlinck said.
“Catching up contributions later in their working life will cost significantly more than the amount withdrawn and will be difficult to achieve for many low-income earners.”
Dr David Knox, Senior Partner at Mercer, added, “It is crucial that we investigate and understand the longer term consequences of the early release scheme.
“The preservation of superannuation assets until retirement represents a fundamental feature of the best pension systems around the world. Any early access to these savings should only be permitted in exceptional circumstances,”Mr Knox said.
AIST’s pre-October Federal Budget submission calls on the Government to commit to addressing the COVID super gap with a number of targeted measures, including a one-off super contribution of up to $5000 for low income earners who were eligible to access the scheme.
AIST recommends:
· A one-off Government contribution to the super accounts of low-income earners (those earning less than $39,837) who accessed their super early and met the eligibility criteria. The contribution would be based on the proportion of balance withdrawn and no more than $5000.
· Increasing the Government superannuation co-contribution rate and threshold.
· The removal of the $450 minimum SG threshold and super on paid parental leave.
· In addition, the legislated increase in the superannuation guarantee to 12% will provide crucial relief from the full brunt of the super gap for those who can return to work.
*The Mercer analysis estimated the impact (in today’s dollars) of the early release payment on retirement; associated lost earnings; and the additional impact of lost SG payments for applicants due to COVID-19.
