The superannuation industry is deeply divided over whether the government’s decision to change the super early release rules is really in the interest of the super fund members.
The measure allows Australians to apply via myGov for access of up to $10,000 of their superannuation from April this year and an additional $10,000 from July 1 2020 for another three months.
Treasurer Josh Frydenberg says it will be eligible for workers and sole traders that have seen their hours worked or income fall at least 20 per cent as a direct result of the coronavirus.
Frydenberg says: “The next few months are going to be a difficult journey but we all have a role to play to adapt to the changes we’re facing, to cushion the impact of what is happening and to pull together so we can bounce back when we get to the other side.”
AustralianSuper backs the government’s initiative and says “it is taking all steps possible and will support the Federal Government’s plan to provide members in financial hardship with early access to their superannuation.”
Sally Loane chief executive of Financial Services Council says it has supported the early release of superannuation in cases of genuine hardship, and recognises the release framework was not designed to address the needs of individuals during a pandemic.
Despite the support, allowing Australians to withdraw their superannuation may put them in a worse position by crystallising the losses the funds have experienced over the last few weeks.
Economist Stephen Koukoulas tweeted: “The notion of letting people withdraw their superannuation is absurd and dangerous. Forcing super funds to sell assets into this market will compound the market crash, further erode household wealth, undermine the economy and bastardise the long run benefits of having superannuation.”
Bernie Dean chief executive of Industry Super Australia (ISA) agrees that there could be a liquidity issue.
“This is an issue that must be handled very carefully in order to prevent the compounding of liquidity pressures that may be faced by superannuation funds in the current market conditions, and as they support anxious members.”
Interestingly, the industry superannuation funds were not consulted in regards to these measures but ISA says it will engage with the government and the Australian Taxation Office to ensure it works.
Dean says: “Assisting those in financial hardship will come down to how well the ATO works with the funds, given each superannuation fund will have to manually issue the money.”
ISA analysis shows a 20-year-old who accesses the full $20,000 available under the scheme could lose more than $120,000 from their retirement balance.
A 30-year-old who accesses $20,000 from super now could lose about $100,000 when they hit retirement and a 40-year-old could lose more than $63,000.
ISA and the Australian Institute of Superannuation Trustees share the view that members who are facing financial hardship should take up the assistance offered by welfare support before dipping into their super.
Dean says: “Members need to know that taking your super now is like selling a house at the bottom of the market- you’ll lose money you would probably claw back overtime.”
FSC’s Loane agrees: “Accessing superannuation should not be the default response to providing income support for Australians in need over the short term, so we are pleased to see that this is a temporary measure as part of a broader income support package.”
The Government announced additional measures that will give retirees more flexibility by reducing the superannuation minimum drawdown requirements by 50 per cent to a total of 2 per cent for this financial year and the following.
Frydenberg this measure will benefit retirees by providing them with more flexibility as to how they manage their superannuation assets.
Lyn Formica head of SMSF technical and education services at Heffron says the measures will assist those who don’t need additional income, as they will not be required to take it out of their fund, potentially relieving some pressure to sell assets.
The Government is also reducing the deeming rates by a further 0.25 percentage points.
As of 1 May 2020, the lower deeming rate will be 0.25 per cent and the upper deeming rate will be 2.25 per cent.
Loane says: “The decision to support retirees at this time by temporarily reducing minimum drawdowns and halving social security deeming rates is a welcome acknowledgement that it is inappropriate to force individuals to crystallise investment losses in a volatile market.”
The SMSF Association supports the reduction in drawdowns especially for SMSF trustees and says it has been calling for this in recognition of share market volatility.
John Maroney chief executive of the SMSF Association says: “So, by implementing this important measure on drawdown rates the Government is giving SMSF trustees the discretion and flexibility to better manage their superannuation assets in these testing times.”
“The Association is also fully supportive of the changes to the deeming rates to reflect the fall in the cash rate to a record low of 0.25 per cent. Many age pensioners, in particular, will benefit from this change.”