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Aussies dipping into super are 'robbing their futures to pay for now'

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The final two days of June and the first few days of July saw more than half a million superannuation members apply to access their money early.

If each application is granted, it's estimated another $4 billion will be wiped from people's retirement nest eggs on top of the $19 billion already withdrawn as part of the federal government's early release scheme.

What we know is that 346,000 of the 511,000 applications in the first week of July were super members applying to withdraw for a second time. Overall, applications are down when compared with the first week of the scheme in April but are up on a month-to-month basis.

early access super robbing future pay for now

Super fund chief executives expect a decline in applications during the second tranche of the scheme, which ends on September 24, as super members only needed $10,000 to tide them over, while others no longer have enough funds to make a second withdrawal. Then there are the super members who recognise the long-term implications of accessing super early.

A media roundtable held on June 30 saw several super fund chief executives discuss the early release scheme and what it means for their members.

Debby Blakey, chief executive at industry super fund HESTA, says she is concerned the early release scheme is increasing the gender gap in retirement resilience. Already the gap between female and male retirement balances is 40%, and the impact is felt at HESTA where more than 80% of members are women.

"It is the 25 to 39-year-olds that have seen very big falls in their super balances," she says.

"[After the first tranche of the early release scheme] the median balance left is $3600 and for the 18 to 24-year-olds it is even lower as many have taken their entire balances, leaving just over $1000 as a median account balance."

Rest chief executive Vicki Doyle agrees with Blakey's sentiments and says her fund also has a high percentage of women members - and the most withdrawals were from women in their 20s to 40s.

David Atkin, chief executive at Cbus, says his fund is trying to make sure his members were aware of the significant ramifications of accessing their super early.

"By accessing super they are robbing their futures to pay for the now ... they're going to need to work another 1.5 to two years to get back to where they were. And based on fortnightly payments of the pension, when they retire they'll have 5% less per fortnight as a result of dipping into the first tranche," says Atkin.

Damien Frawley, chief executive at fund manager QIC, says the early release scheme and other economic factors will present challenges for the way super funds invest people's money.

"What we need to contend with is the recession, and how long that runs, I think early retirement and forced redundancy ... is an issue that we all need to set out to understand," he says.

He says Qantas flagging there will be 6000 people leaving the organisation is "just the start across multiple industries". Over the next year or two, "this will present challenges in terms of managing portfolios and accommodating those people who want to leave or are forced to leave early".

Since the super early release scheme began in April, regulator APRA says more than 2.7 million applications have been lodged and about 2.54 million payments have been made (averaging $7511).

The ATO will be cracking down on super members that have withdrawn super under false statements. This includes people who have accessed their super without losing 20% of their work hours or 20% of business turnover for sole traders, artificially arranging affairs, or making false statements to meet the ATO's withdrawal criteria.

The CEOs agreed there needed to be greater collaboration and policy certainty around any future legislation allowing members early access to their funds. The clarity will allow super funds to better allocate investments to meet the long-term retirement needs of all Australians.

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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Darren Snyder is the managing editor of Money magazine. He is a former editor of Financial Standard, where he had worked as a journalist, predominantly covering superannuation. Previously a mining and wine industry reporter at the Mudgee Guardian, Darren was awarded the Sir Harry Budd Memorial Award for Australian Country Journalism in 2012.
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