Second EOFY run on superannuation funds

Via the ABC:

Desperate times have seen many Australians raid their superannuation accounts to the tune of the maximum $20,000 early withdrawal since the coronavirus pandemic struck.

Sam Espie lost his financial services job in March when the COVID-19 shutdowns hit home.

The business he worked for did not qualify for JobKeeper so, naturally, he began to worry about his finances.

He chose to draw down $10,000 from his super under the Government’s early withdrawal scheme.

“My concern was that if things got as bad as they felt like it would that the balance sheet would be empty and there’d be no cash,” he explained to PM.

Fast forward five months and Sam Espie is still out of work.

Fearing another lockdown in New South Wales, he’s drawn down a further $10,000, made possible by the start of the new financial year.

“[I] took out the next $10,000 last week,” Mr Espie said.

“We’ve spent some on bills that we’d pushed out and were outstanding.

Sam Espie is one of millions of Australians who are taking advantage of the Federal Government’s early super release program.

Banking regulator APRA’s weekly update on early superannuation access shows, since the pandemic struck, 2.7 million accounts have been drawn down.

Opposition spokesman for financial services Stephen Jones said he has been told that over just four days last week, one fund had 50,000 early withdrawal applications.

Industry super fund HESTA has confirmed to PM it had more than 47,000 withdrawal applications in the first two weeks of July.

Mr Jones warned there is now a run on superannuation, with roughly 500,000 Australians completely clearing out their accounts.

“I think we’ve had a significant run, well in excess of [the $29 billion] the Government anticipated,” he said.

“That’s of great concern.”

Assistant Minister for Superannuation and Financial Services Jane Hume told PM that the Tax Office has so-far approved almost $30 billion of super withdrawals.

However, she pointed out that is only a fraction of the roughly $3 trillion Australian superannuation pool.

She also labelled Stephen Jones’ call of a “run” on superannuation accounts “irresponsible”.

“In fact, it’s incredibly disappointing that in a time of financial crisis that sort of intemperate language is used,” Ms Hume responded.

Super withdrawals could reduce infrastructure investment

Whatever you call it, tens of billions of dollars have been drained from the superannuation industry.

The government relies heavily on the industry to help fund major infrastructure projects.

Equity Economics’ lead economist Angela Jackson said early super withdrawal throws a spanner in the works for both super funds and the Government’s economic plans.

“In terms of the reserves of the super funds, obviously they’re not going to be tapping into long-term investments at this point,” she said.

“They’re going to be tapping into cash reserves and short-term investments, money that would have been available to make those long-term investments that involve, generally, partnering with the Government on big infrastructure projects.

“They won’t have those funds, or as much available, over the next period.”

Senator Hume said the Government’s infrastructure plans will not be affected, even if more Australians than expected withdraw their super early.

“Only a couple of weeks ago, CBUS chairman Steve Bracks was announcing a strategy to create over 100,000 jobs, along with other industry funds,” she observed.

“Around $19.5 billion was announced to be invested in infrastructure from industry funds over the next three years.

As for concerns those drawing down their super will either have nothing, or very little, to retire on, Sam Espie had more pressing immediate concerns.

“With two small children in the house, to me, I was ranking that above all of those other things,” he said.

“I placed a higher price on the peace of mind at night knowing there are resources there.”

Chief executive of lobby group Industry Super Australia Bernie Dean said industry funds remain “very well placed” to meet the demands of the Government’s early release super scheme.

That’s s a lot of economic support brought forward.

David Llewellyn-Smith
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Comments

  1. A lot economic support brought forward …. at the expense of future taxpayers who will bear the additional pension burden.

    Assuming, of course, there is such a thing as Age Pension ten years from now. Big call …

    • The Age Pension will still exist when we have let in a lot of middle-aged migrants who undertake low skilled work (and therefore, low super contributing). They won’t have enough in super and will need the pension to live. Plus a lot of low income earners have had no wage growth (and yet still have high living costs) and therefore have little in their super too, due to turbo charge immigration.

      This is a very large group in total.

      The migrant group in this cohort will be very vocal in ensuring they get what they came here for (through branch stacking and ethnic vote blocking).

      It will be then when we see the error in bringing low skilled migrants at middle age with low income prospects, and low super and tax contributing potential at a time when they will be using Medicare en masse; taking out far more then they were ever able to offer (or hoping to give).

      • DominicMEMBER

        Don’t worry, my point was that getting all these leaners in now will ensure the State goes bankrupt a lot sooner than it otherwise would and everyone will end up losing out. I know people can’t conceptualise the idea, but I’m pretty confident it’ll happen. The Gubmint can send everyone cheques for $300 every week but if the $s aren’t worth anything then you have nothing. The Govt of Venezuela sends cheques to their peeps and they buy eff all. That’s because the Bolivar has been over-printed and is worthless. Same will happen to us eventually.

  2. I’m pulling money our in anticipation that by retirement it may not be there anyway with the way things are being run.

    Better to pay down the Mortgage so that in a couple of years the excess money not going to that can be put toward other more diversified investments.

    • Arthur Schopenhauer

      I have the same thoughts Gavin. There’s no guarantee it will be there in 20 years.

      I met a number of 50 and 60 somethings in the US in 2009 that had had good jobs as University Professors, engineers and the like. Their 401s had collapsed in the GFC due to funds investing in ‘Safe as Houses’ mortgage backed securities. They had nothing in late middle age.

      Many of Australia’s Super funds are up to their necks in office blocks and retailers. Hmmm…

    • DominicMEMBER

      Definitely worth bearing all that in mind – the tougher things get financially for Gubmint the more they’ll come after the money that’s most easily available. They have guns and jails. We don’t.

  3. Can't Socially Distance

    Great to see such great financial responsibility and literacy within the population!!

    What would these people be doing without the $20k cash pulled from super, without their JobKeepers and JobSeekers?

    Doesn’t anyone put money aside for emergencies, job loss, recession, illness, caring for a loved one, etc?

    • Maybe some thought it’s better to have it put away, in their vicinity, in case they need it in the near future, or for their retirement, rather than in the hands of, Royal Commission deemed shysters, that were told how naughty they are, and to just stop it.

      And, at this stage who knows what will end up of super funds, maybe they’ll be worth less in real terms than today, maybe they won’t be there, maybe they will be more valueable than can be imagined.

      Why take the risk, put as much of it as you can in your grasp, and yes I know about fools and money, it should be held onto very tightly.

    • The90kwbeastMEMBER

      Don’t you know saving is for losers? Load up on debt buddy, it’s at record cheap prices to obtain!

      In all seriousness, I reckon mortgage offset accounts are probably in a semi-reasonable state but aside from that people would have very little left over. Mortgage & rent is through the roof in Sydney & Melb, and takes so much of your after tax salary these days.

      • Can't Socially Distance

        I bet most of these people pulling out their $20k from super drive better cars than I do!

  4. I’m torn. Withdraw super now to get the cash bailed-in Cyprus style or leave it in there and risk losing it all?

  5. What happened to the scare of the run on super funds threatening the viability of industry super funds?
    No longer an issue? The real issue is MB’s super funds conflict of interest.

  6. TailorTrashMEMBER

    Presumably the superfunds don’t have these billions of dosh sitting around in the folding stuff ……..so what are they selling to raise it ……and if they are selling say billions of equities …..who is buying? ..and where are the buyers getting the dosh in these lean times ?…this is a serious question …..would appreciate some thoughts
    from those who understand how these funds operate.

  7. Rorke's DriftMEMBER

    I actually think this super withdrawal is the one thing that justifies our super system. Turns out it is forced saving for a rainy day and was there to provide a private bailout fund, instead of the govt needing more bailouts, bankruptcys or asset crash. This will save some people and hold some families together.