Finance Your Super Early super access could damage the futures of lower-paid workers

Early super access could damage the futures of lower-paid workers

Super fund members are looking for ways to make it through the crisis. Photo: Getty
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Superannuation fund members should exhaust all other possibilities before using their new rights to withdraw $20,000 from superannuation between now and June 2021, industry sources have warned.

As part of its $66 billion support package announced on Sunday, the Morrison government gave super fund members the right to withdraw $20,000 over the next two years if they are suffering financial stress.

The payments are tax free and don’t affect social security income tests.

But Australian Institute of Superannuation Trustees CEO Eva Scheerlinck said it should be members’ last resort as they would be selling shares in a falling market.

“Our view is that it would be better for members to utilise other options before taking money out of super as that locks in losses when markets have fallen,” she said.

Her view was supported by Damian Graham, chief investment officer with First State Super.

“We want it to be an option but not the first option,” Mr Graham said.

“We’ve seen some significant and very quick falls in markets and we don’t want to see those crystallised by members making withdrawals unless absolutely necessary.”

Withdrawals at current low market values would leave members with low balances once the markets started to recover and mean many could not restore their previous positions.

“The most vulnerable would be low-paid and casual workers, many of whom would be women, and the gender pay gap would make it very difficult to recover,” Ms Scheerlinck said.

Other options are on the table

National Seniors chief advocate Ian Henschke said expanding the “little-known pension loan scheme would be preferable to super withdrawals for many eligible people”.

The scheme, open to people of pension age with a property, “gives people the opportunity to borrow against their home at up to 150 per cent of the age pension,” Mr Henschke said.

“It gives couples up to $36,000, plus a further $18,000, above the age pension they are currently receiving.”

Fully utilising the scheme would give retirees a way of accessing capital without eroding their super balances further,” Mr Henschke said.

“There was also a possibility for the government to expand its use to people before retirement age as a means of financial support,” he said.

The scheme allows borrowings up to the value of the home and is repayable on death or when the house is sold.

It charges interest of 4.5 per cent, but, in the current environment, Mr Henschke said the rate should be cut to the maximum deeming rate of 2.5 per cent.

Extending the scheme beyond age pensioners would be an attractive way of allowing people to access the value of their assets without having to sell into depressed markets.

“I can see two sides to the early release of superannuation,” Mr Henschke said.

“The market has bottomed so badly that if you access $10,000 now you won’t be able to recover with the market if it rises in the next 12 to 18 months.

“However, if it is necessary, it could be useful.”

Early withdrawals are difficult to manage

Widespread withdrawals from superannuation could be difficult for the super industry.

“It would be administratively an issue to sell assets for people who have invested in superannuation for the long term,” Ms Scheerlinck said.

Placing on funds the burden of establishing the identities of lots of members wanting to withdraw money from super would also be unfair because they were not set up to do it.

Ms Scheerlink said the ATO should carry out this task as it already fulfilled this obligation for the first home super saver scheme, which allows aspiring home owners to access up to $30,000 in superannuation savings to put towards a house deposit.

That early withdrawals will be a negative for super funds was reflected in Monday’s share price movements.

Investment and retirement group Challenger saw its share price drop by nearly one-fifth to $3.08 after the early withdrawal scheme became known to markets.

Funds holding up better than some

Meanwhile, as of Friday, the average balanced superannuation fund had dropped by about 13.6 per cent from the market highs of February 20 – much less than the benchmark S&P/ASX index’s fall of 36.6 per cent.

Mr Graham said the diversification of super funds was helping to protect balances.

“The listed markets have fallen significantly, but the unlisted assets do not fall as quickly,” Mr Graham said.

The experience of the GFC showed that non-listed assets gave overall support to super portfolios, not falling nearly as much as sharemarkets.

Back then, shares lost 57 per cent of their value and REITs a massive 70 per cent.

Indeed, many of those were totally recapitalised, creating permanent losses for their holders.

Unlisted assets lost between 10 per cent and 20 per cent of value but regained it later.

To date, stockmarkets are down roughly 30 per cent with listed real estate investment trusts [REITs] down 42 per cent, according to Chant West.

In another move to help retirees, the government has halved the minimum drawdown rates on superannuation pensions, which previously ranged from 4 per cent to 14 per cent of account values.

For the next two years, these have been cut to between 2 per cent and 7 per cent.

National Seniors had called for the move last week.

Mr Henschke said it “will be very welcome for some people”.

The New Daily is owned by Industry Super Australia

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