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Opinion

Raiding super shortchanges the financially vulnerable

Opinion

Allowing the young and cash-strapped early access to superannuation to help them through the pandemic will have long-term ramifications and undermines the system, argues Marielle Smith.

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The Federal Government’s Superannuation Early Release Scheme forces too much of the economic burden of the COVID-19 crisis onto those who can least afford it, leaving them no choice but to raid their retirement savings.

This isn’t a criticism of those who have used the scheme. I have nothing but compassion for the millions of Australian workers and small business owners who have been left with no other option than to empty out their super early.

For many who have lost their jobs, had their hours drastically cut back or seen their business revenue dry up due to COVID-19 shutdowns, they simply felt they had no choice.

This hit close to home recently when my younger brother, who is a small business owner, was recently left with no option but to withdraw a second round of his minimal super under the scheme. The bills have kept coming while the income has dried up, and like many small businesses, and those who depend on them for their livelihood, there just wasn’t enough cash in the tank to provide cover through a prolonged crisis.

But it never should have come to this.

Australia’s superannuation scheme is the envy of the world. Its brilliance is its simplicity, its universalism and its security.

The very idea of super is undermined if Australians, and especially young Australians, are forced to raid it well before they reach retirement age.

And we know this is happening: young people are drawing down on their super at a disproportionate rate, likely due to fact that they make up a similarly disproportionate share of casual workers and those in industries worst hit by this crisis.

Financial analysts have estimated that a 30-year-old withdrawing $10,000 today will have $20,000 to $25,000 less in their retirement. Already, a staggering 3 million applications have been received for the early access scheme. In South Australia this figure is more than 70,000, with up to 30,000 South Australians having completely drained their super and a large proportion of claims coming from young people.

As former Prime Minister and architect of Australia’s superannuation system Paul Keating has argued, the scheme has meant that the young, the most vulnerable and the lowest-paid Australians have effectively funded tens of billions of dollars’ worth of income support and stimulus payments in the form of their own savings. Almost 600,000 young Australians have been left with no superannuation at all.

Let’s consider this alongside the repeated calls coming from Liberal MPs and Senators to delay next year’s scheduled Super increase from 9.5 percent to 10 percent (and to 12 percent by 2025). The increase has already been legislated, but the minister responsible for super, Senator Jane Hume, has described herself as ‘ambivalent’ about a policy change, and cross-bench Senators including Centre Alliance’s Stirling Griff reportedly support a delay. To renege on the super increase commitment would amount to a broken promise to millions of Australian workers.

According to Industry Super Australia, such a backflip would impact more than eight million Australians. Indeed, for the average Australian worker, it would equate to a decrease of around $1630 in their super fund per year.

Those calling to delay the increase argue that a delay would amount to more money in the pockets of workers immediately through increased wages. But with wages growth practically stagnant for the life of this Government, there is little reason to believe any saving from the delay would be passed on to workers in the form of higher wages.

If anything, the fact that so many workers have drawn down on their super just to get through this crisis reinforces the need for the scheduled increase to go ahead, to try and mitigate the long-term losses many will face.

Of course, increases to super contributions only affect those fortunate enough to still be in work, accumulating super. We know that this isn’t the case for all young Australians. In June, the unemployment rate for those aged 15-24 increased to 16.4 per cent, a 23-year high. Young people have already lived through rising levels of unemployment since the GFC, and now roughly one in six young Australians who are looking for a job can’t find one.

The inability for so many young Australians to find work at the start of their careers may well have disastrous long-term consequences for individuals and will certainly hamper our economic recovery. For these young people, super may be the farthest thing from their mind, but the fact is the longer young Australians stay out of work, the less superannuation they will accumulate and the less secure their retirement will be.

Australians are rightly proud of our superannuation system. Indeed, Australian superannuation funds have outperformed almost all comparable systems around the world, delivering all-important financial security to millions in their retirement. While during these tough times it may be tempting to think of super as a luxury, or to succumb to the very human impulse to prioritise immediacy, we cannot let our future prosperity and security be undermined under the cover of this pandemic.

This is especially true for young Australians, who are already set to feel the economic consequences of the pandemic for decades to come. It is also crucial for women both young and old who, on average and for a host of reasons, already have significantly lower super balances than men. Compromising their future financial security in order to fund their financial survival today is not acceptable.

If young Australians are left with no other option but to draw down their super just to survive this pandemic, and our Government can’t financially manage us through it without attacking the collective retirement savings of eight million Australians, then we need to reassess the national economic response to this crisis.

For the millions of young Australians doing it tough, for those who feel they have no other option, for every Australian, we must do better.

Marielle Smith is a Labor Senator for South Australia and deputy chair of the Senate Select Committee on Financial Technology and Regulatory Technology.

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