The forecast has estimated the costs to the retirement income system as early super applicants are set to have more reliance on the Age Pension after depleting their accounts.
Treasury confirmed on Friday that to date, $33.3 billion had been approved for release under the scheme. APRA figures released on Monday that as at 9 August, the funds had paid out $31.1 billion.
The BetaShares forecast of $100-$130 billion in resulting costs for the retirement income system from the early super scheme, has been based on $30 billion being withdrawn – the ETF group believes the total is only set to grow as more money is accessed.
The scheme was extended to the end of the year – with Treasury issuing a revised estimated total for withdrawals of $42 billion, from its initial $27 billion.
BetaShares chief executive Alex Vynokur said while much attention had been given to the long-term impact of early super withdrawals on those who have used the scheme, little thought has been given to what it will eventually cost the government in additional pension payments.
“This was a well-intentioned but misguided policy from the start. The true cost of allowing people to access their super early will ultimately be paid by future Australian governments and taxpayers,” Mr Vynokur said.
“We believe it is critical to examine what impact this policy will have on Australia’s retirement system, particularly after the recent decision by the government to extend the scheme to the end of the year. There is no doubt that extending the scheme will exacerbate the problem that the government has created.”
The undermining of the importance of super by the government is a problem, Mr Vynokur cautioned.
“We have the [fourth-largest] retirement savings pool in the world for what is globally a very small population. The reason why we punch above the rest of the world as a nation is because of that compulsory superannuation system,” he said.
“Policy around early release of super flies in the face of this. I fear that going forward our superannuation system will become a tempting target to be used by governments, present and future, as an ATM to withdraw money to plug holes in the economy.
“Without proper governance, the early release policy has set a dangerous precedent.”
‘Young Australians will already have to foot most of the bill’
BetaShares has also warned that younger consumers are set to be the hardest hit, after Treasury figures revealed that almost half of all claims were being made by people under the age of 35.
The modelling suggested $10,000 today could become a $70,400 nest egg over 40 years, using an annual growth rate of 5 per cent plus CPI.
By contrast a person who withdraws $10,000 today and is 20 years out from retirement, will only lose $26,533 on the same terms, or $38,687 with a 7 per cent plus CPI return.
“Younger Australians will already have to foot most of the bill of one of the largest government debts this country has ever seen,” Mr Vynokur said.
“Unfortunately, it is the least informed and least financially literate that are in the most vulnerable position for opting in for early super withdrawal. As such, the scheme will further the gap between the haves and [have-nots].
“It has also damaged the educational effort in which the Australian government has invested over decades to highlight to Australians the importance of superannuation and long-term wealth accumulation.”
The Association of Superannuation Funds of Australia (ASFA) has called for the legislated super guarantee rise next year to proceed, as Prime Minister Scott Morrison hinted the government may consider freezing the rate at its current 9.5 per cent after COVID.
But ASFA has warned the SG rise will be critical to protecting younger Australians from the long-term effects of the pandemic.
The body released modelling on Friday stating that for a 25-year-old woman who has accessed $20,000 under the early release scheme, she could lose out on as much as $85,000 if she is also unable to secure employment and contribute to her super for two years.
ASFA deputy CEO Glen McCrea said “if today’s young people are to avoid ending up on the [Age Pension], every single dollar contributed to superannuation counts”.
“Young people, those aged 20-29 are the generation that will need superannuation the most. The government’s own modelling outlined in the last Intergenerational Report paints a bleak picture of 2050: fewer taxpayers, less money available for Age Pensions and significantly more older Australians to support,” Mr McCrea said.
“Lifting super to 12 per cent of wages will mean more people in retirement can afford decent aged care. It’s not fair that young people should suffer the devastating impact of COVID-19 now and then also be forced into poverty in retirement by relying solely on the Age Pension – we are better than that.”
