By now, we are probably all familiar with the government’s COVID-19 early release superannuation scheme that was initiated last year. Targeted as a stimulus and hardship measure, this scheme enabled eligible adults to withdraw up to $20,000 from their superannuation accounts for the majority of 2020.
This was a controversial measure, as the purpose of the superannuation scheme is to provide an adequate income in retirement for Australians. And without placing a burden on the Age Pension system.
Since super works by harnessing compound interest, early withdrawals can have a far larger effect on a workers potential retirement balance than just the dollar value of the withdrawn cash.
But we are only now realising the full impacts that this scene may have had, especially for women and younger Australians.
According to new research from Colonial First State’s Retirement Realities research, more than $36 billion was collectively withdrawn from the nation’s super accounts through the early release scheme in 2020. And the withdrawals were disproportionately concentrated amongst younger Australians. The research found that 65% of withdrawals were made by people under the age of 40. And, almost one-third of that $36 billion was withdrawn by members under the age of 30.
Super funds are still looking empty
Interestingly, of those who accessed an early super payment, 59% still had a contribution paid into their account in 2020. But only 4% did so through a voluntary personal contribution, with another 14% receiving government contributions.
Colonial First State also found that 41% of its members who initiated an early withdrawal from super have yet to start rebuilding their savings. This is especially important for younger Australians. These Australians have the most to lose from missing out on years of compound interest potential. As an example, a $20,000 lump sum will grow to just over $40,000 over 10 years. That’s at an average compounded annual growth rate of 7% per annum.
But what about over 30 years, which is how long a 25-year old worker might expect to remain in the workforce? Well, that potential loss grows to more than $160,000 at that same 7%.
That view was backed up by Colonial First State general manager, Kelly Power. Ms Power stated the following on what younger Australians should now be doing with their super:
We are now encouraging Australians to consider a plan to rebuild their nest eggs and replenish their super. It is positive to see that of our members who withdrew their super early, half of those have made headway in making contributions, whether through their employer or own pocket, to get their super back on track. For younger members in particular, now is the time to start making up some lost ground by using these contributions to rebuild their savings for the years ahead.