Retirement
A short-term fix: Lack of strategy behind super withdrawals
A large proportion of Australians who have withdrawn their super early as a result of financial hardship have not even stopped to consider how it will impact their savings at retirement.
A short-term fix: Lack of strategy behind super withdrawals
A large proportion of Australians who have withdrawn their super early as a result of financial hardship have not even stopped to consider how it will impact their savings at retirement.
Joint research from the ARC Centre of Excellence in Population Ageing Research (CEPAR) and super fund Cbus has discovered that the urgent short-term need for funds has driven the majority of decisions by Australians to withdraw some or all of their superannuation savings without much thought to the impact it would have on their future superannuation outcomes.
Just recently, nestegg reported that Australians have now collectively taken $33.3 billion from the superannuation savings pool since the early access to super scheme was announced by the Morrison government back in March.
To undertake the research, more than 3,000 Cbus members were surveyed who had withdrawn some or all of their superannuation savings in the first phase of the scheme, between April and June 2020.
According to the analysis, most respondents withdrew the upper limit: $10,000.
Seven in 10 respondents (70 per cent) took the $10,000 and had a balance of more than $1,000 remaining after the event.
A further 25 per cent of surveyed members “withdrew almost their entire account balance”.
“Immediate financial need” was the most common reason for accessing superannuation savings, with 59 per cent of respondents attributing this as the main factor.
Concerns for future expenditures was the second most commonly cited reason for participation in the scheme, at 27 per cent.
Around half of respondents reported spending a week or less thinking before they decided if they would apply for early release. More than a quarter (28 per cent) “either made up their minds immediately or within a day of hearing about the scheme”.
Worryingly, around one-third of respondents indicated they were “unsure of, or unconcerned about, the long-term consequences of their withdrawal”.
In addition, half of surveyed applicants said they had either underestimated, or didn’t estimate at all, the impact of the withdrawal on their superannuation balance at retirement.
According to co-author Hazel Bateman, a professor of economics at the UNSW School of Risk and Actuarial Studies, the findings demonstrate “that many withdrawers either could not or did not evaluate the impact of their decision”.
But the report was able to reveal that members who collected information from Cbus and from other sources, such as news services or social media, were half as likely to decide to withdraw within one day or less than members who used no information.
Those members who had spent longer thinking and consulted more information sources before withdrawing their savings were reported as holding more realistic expectations of impacts on retirement wealth.
“This shows that more attention to information is related to an attempt to assess impact on retirement balances,” Professor Bateman said.
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