Early Release Super: Financial Assistance or Money To Burn?June 05 2020
Written by: Ben Crow, COO WLTH Finance Tracker
Since the start of the Covid-19 global pandemic, Australians have been presented a number of packages to help release some of the financial pressure. One of these areas has been the changes to Superannuation and the ability to withdraw funds, with the Federal Government announcing on the 22nd of March that those individuals affected would be able to apply for early release of their superannuation.
The changes were implemented to help to relieve some of the financial stress from the pandemic and provide a safety net for those that had seen a drop in their income since the lockdown was enforced. However, what has become clear is that a large number of Australians that have accessed their funds have not used the funds as originally intended.
To be able to qualify for the early release of super, you must be unemployed, have been made redundant or had working hours reduced by at least 20 per cent since January 1. Since the release of super, the findings suggest that 40% of those accessing their super had seen no loss in income and for those that had, those losses had been offset by government payments.
The Australian Bureau of Statistics has also released some numbers from their most recent survey that highlights a real disparity between how those who had applied for early access to super had planned on spending it compared to how it was spent. The ABS survey asked people who had applied for early access to super, how they used or planned to use the money with 57% using/ planning to use the money to pay household bill and other debts with 36% adding or planning to add it to savings.
However, a survey conducted by Illion and Alphabeta of 13,000 people who withdrew money from super revealed some very alarming numbers. From those surveyed, spending almost tripled in the two weeks after receiving money, compared to the 2 weeks before with discretionary spending (Leisure, entertainment, cafes and personal care) up around 64%. Although there were still increases is Essential spending (22% increase) and Debt Repayment (14% increase) the amount that has been spent on non essential items is very concerning and is not how the government had anticipated for those in need to use the money.
Since the early release of super was made available, there have been around 1.4 million applications that have been approved so far, with just under 500,000 of those successful applications are for Australians under the age of 30. Although pulling money out of super may not seem like a big deal at the moment, it is hard to foresee what this will mean for them down the track. If this money isn’t being used for the correct reasons it creates a scary unknown and could significantly affect their retirement plans in 20-30 years.
With the full effects of Covid-19 still largely unknown, more Australians might be required to access their super in the coming months. Based on the learnings that are available since the government allowed for early release of super, it is very important to start policing the scheme more closely and better educate the younger generation about the long term risks of accessing their retirement nestegg sooner. The recent findings highlight that there is a need for rules and regulation around how the money can be spent. By increasing the rules it will hopefully reduce the amount of applications from people trying to get access to the funds for the wrong reasons and ensure that only those that qualify and are in desperate need of the added funds to be able to access it.