Retirement
Early super release to ‘come back and bite’
Superannuation members who take advantage of the government’s new early access to super will see tens of billions of dollars of assets dumped in a declining market and funds potentially being forced to freeze withdrawals, according to a research institution.
Early super release to ‘come back and bite’
Superannuation members who take advantage of the government’s new early access to super will see tens of billions of dollars of assets dumped in a declining market and funds potentially being forced to freeze withdrawals, according to a research institution.
SuperRatings has called for a reshaping of the current proposal for early release of super to those in financial stress, which allows individuals to withdraw $10,000 before July and a further $10,000 in the next financial year, tax-free.
The researcher is concerned the eligibility criteria is open to virtually anyone on a self-assessment basis to make a claim, with the potential for rorting the system being significant.
Jeff Bresnahan, chairman of SuperRatings, said “there must be a better way”, noting nearly all of the scheme’s problems will arise because its eligibility criteria is too generous.
“This shotgun approach has the potential to come back and bite the government,” the specialist research house has warned, noting the early superannuation release measure will see tens of billions leave the system.
SuperRatings also expressed fear that as a result of unnecessary claims, some funds will be forced to freeze withdrawals to protect remaining members.
“This is not new. Every financial crisis has resulted in a small number of investment funds being frozen, although this might be a first for super funds,” the researcher said in its analysis.
It has calculated, based on ASIC’s MoneySmart calculator using a growth option with an assumed investment return of 5 per cent before fees and taxes on earnings, $20,000 out of a 35-year-old’s account over the next 12 months will forego around $80,000 in future benefits.
“The focus absolutely needs to be on those who truly do need access to cash, and fast. Quite simply, those displaced from their jobs due to this horrific COVID-19 virus. In reality, those in hardship. This shouldn’t be a self-assessment process for all Australians.
“The government has less than three weeks to tweak what is a valid and morally sound strategy to protect, as best they can, the financial stability of those who have been displaced due to COVID-19 consequences. The idea is sound – the execution not the greatest.”
SuperRatings has proposed three options to improve the early raid measure:
- Allow funds to take a loan out from the RBA to meet all claims, which would be secured against members’ benefits and repayable after a period such as five years. Members would supposedly then be able to recoup lost investment earnings, while the government is protected, individuals get emergency funding and the funds don’t have to sell assets into a declining market.
- A variation on the first option, but with the ATO handling all claims, making all payments and retaining the loan register. SuperRatings said this is a cleaner payment portal and protects the government, member and fund.
- Protect funds against having to sell into declining markets by ensuring that payments are only made to those in genuine hardship (which SuperRatings has defined as having registered as unemployed or being stood down and remain so after four weeks).
“By winding back the eligibility criteria, the level of claims will be lower and hence more manageable. This in turn creates more flexibility for the government on how to best work with the funds to ensure those in need receive assistance as quickly as possible,” SuperRatings stated.
“Opening the floodgates to allow virtually anyone and everyone to drag up to $20,000 out of their super fund, with the current market volatility, is not the answer. All this after bipartisan governments have spent over 27 years – and half a working lifetime – getting Australians’ retirement savings into shape.”
RELATED ARTICLES
About the author
About the author
Superannuation
Superannuation guarantee rate rises to 12 per cent as parental leave changes take effect
The superannuation guarantee rate has increased from 11.5 per cent to 12 per cent from Tuesday, with super contributions also being added to Commonwealth Parental Leave Pay for the first time. Read more
Superannuation
Rest's Sustainable Growth option achieves highest sustainability classification
Rest superannuation fund has achieved the highest sustainability classification for its Sustainable Growth investment option from the Responsible Investment Association Australasia. Read more
Superannuation
Aware Super slashes admin fees for retirees by up to 25 per cent
Aware Super has reduced administration fees for members with a retirement income account by up to 25 per cent and lowered the maximum annual fee. Read more
Superannuation
SuperAPI co-founder criticises Labor's superannuation tax as 'sneaky tax on young people'
The co-founder of SuperAPI has labelled Labor's proposed tax on superannuation balances above $3 million as a "sneaky tax on young people, tomorrow" disguised as a policy targeting wealthy retirees ...Read more
Superannuation
Election policies could reshape Australia's superannuation landscape, expert warns
Competing superannuation policies from Australia's major political parties could have significant implications for investors and retirees, according to a financial expert. Read more
Superannuation
Industry leaders weigh in on concessional super tax as Budget confirms $55bn investment
Changes to the taxation of superannuation earnings and contributions have drawn mixed responses from financial and payroll sector leaders, as the Federal Budget confirms over $55 billion in ...Read more
Superannuation
Call for indexation on super tax cap as $3m threshold draws criticism
A senior executive in the superannuation technology sector has criticised the Federal Government for failing to index the proposed $3 million superannuation tax cap, arguing the measure will unfairly ...Read more
Superannuation
Rest members back calls for fairer superannuation rules ahead of Federal Budget
Rest has called on the Federal Government to implement superannuation reforms aimed at improving fairness across the system, after member survey results showed strong support for a range of proposed ...Read more
Superannuation
Superannuation guarantee rate rises to 12 per cent as parental leave changes take effect
The superannuation guarantee rate has increased from 11.5 per cent to 12 per cent from Tuesday, with super contributions also being added to Commonwealth Parental Leave Pay for the first time. Read more
Superannuation
Rest's Sustainable Growth option achieves highest sustainability classification
Rest superannuation fund has achieved the highest sustainability classification for its Sustainable Growth investment option from the Responsible Investment Association Australasia. Read more
Superannuation
Aware Super slashes admin fees for retirees by up to 25 per cent
Aware Super has reduced administration fees for members with a retirement income account by up to 25 per cent and lowered the maximum annual fee. Read more
Superannuation
SuperAPI co-founder criticises Labor's superannuation tax as 'sneaky tax on young people'
The co-founder of SuperAPI has labelled Labor's proposed tax on superannuation balances above $3 million as a "sneaky tax on young people, tomorrow" disguised as a policy targeting wealthy retirees ...Read more
Superannuation
Election policies could reshape Australia's superannuation landscape, expert warns
Competing superannuation policies from Australia's major political parties could have significant implications for investors and retirees, according to a financial expert. Read more
Superannuation
Industry leaders weigh in on concessional super tax as Budget confirms $55bn investment
Changes to the taxation of superannuation earnings and contributions have drawn mixed responses from financial and payroll sector leaders, as the Federal Budget confirms over $55 billion in ...Read more
Superannuation
Call for indexation on super tax cap as $3m threshold draws criticism
A senior executive in the superannuation technology sector has criticised the Federal Government for failing to index the proposed $3 million superannuation tax cap, arguing the measure will unfairly ...Read more
Superannuation
Rest members back calls for fairer superannuation rules ahead of Federal Budget
Rest has called on the Federal Government to implement superannuation reforms aimed at improving fairness across the system, after member survey results showed strong support for a range of proposed ...Read more
