Retirement
Next generation will foot the bill for early access to super
If the $32 billion taken out of the superannuation system is not put back in, the cost of pension could almost double, with the next generation likely to pay higher taxes, according to an industry body.
Next generation will foot the bill for early access to super
If the $32 billion taken out of the superannuation system is not put back in, the cost of pension could almost double, with the next generation likely to pay higher taxes, according to an industry body.
Industry Super Australia (ISA) has warned that the superannuation guarantee (SG) increase must go ahead to avoid significantly lower retirement income and a spike in the aged pension that the group claims would be funded through higher taxation.
New research from ISA shows that a 30-year-old who withdraws the full $20,000 would have $50,000 of additional age pension entitlements, while a couple who both draw the full amount would receive $100,000. But that still wouldn’t be enough to cover the lost super, meaning the two case studies would still be $41,000 and $80,000 worse off in retirement, respectively.
ISA chief executive Bernie Dean pointed out that avoiding fixing the problem tomorrow due to economic difficulties today does not help Australians in the long run.
“The community knows the government’s dealing with a crisis, but it doesn’t make sense to backflip on the promised super increase when you’ve just let people raid their savings to prop up spending,” Mr Dean warned.
Despite Mr Dean’s warning, researchers in The Grattan Institute have previously found that any shortfall in superannuation would be made up for in higher aged pensions.
While this would put pressure on the government’s purse strings, it does suggest that members’ retirement outcomes would not fall.
“Although individuals can choose to withdraw and spend their own money under the scheme, the resulting increase in age pension entitlements must be funded by others – likely through higher taxes than would otherwise be the case,” ISA said in its research.
“This appears to have been overlooked by many proponents of early access to preserved retirement benefits. The costs are so significant because of the loss of compound market rates of return that significantly exceed wages growth and borrowing costs for sovereign governments.”
Early super withdrawals have surpassed initial estimates of $27 billion and are now expected to reach $42 billion. Withdrawals currently stand at $32.2 billion.
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