Early withdrawal of super is a fraught topic

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The Australian super industry’s peak body released a paper last year titled “Australia’s super system stacks up well internationally”. While the title gives away the main thrust of the document, it still made this concession: “Where Australia does not come out so well… is adequacy of retirement incomes. The OECD publication notes that to ensure higher retirement income, people need to increase their retirement savings, their pension contributions and/or the length of their contribution period.”

There’s been a long public conversation on this subject. Central to it is the policy of increasing the minimum proportion of an employee’s wage that an employer must pay into their super fund. It’s been at 9.5 per cent since 2014 and was supposed to gradually increase to 12 per cent between 2021 and 2025. That was in question before the virus, and is now a point of contention once again.

Where it gets really tricky is whether a mandatory increase directly benefits workers or whether it has a negative influence on wages and so ultimately has a negligible or even counterproductive overall effect.

There’s debate about whether withdrawing super early during the pandemic will leave people significantly worse off in the long run.

There’s a related debate about whether withdrawing super early during the pandemic, as you’ve done, will leave people significantly worse off in the long run.

Members of the Grattan Institute, for example, argue that “most Australians will have a comfortable retirement even if they have spent some of their super early”.

But others have pointed to surveys showing that many who’ve withdrawn super early have underestimated the effect the decision will have on their future savings.

As you can see, there’s not a great deal of black and white here, and it’s all made more complicated when you add in your personal circumstances.

Finally, to your point about this being your money and you should have the right to do what you want with it. I asked Professor Geoffrey Kingston from the Macquarie University Department of Economics about this. He explained that super was devised as a way of decreasing the need for taxpayers to support fellow citizens once they stop earning from work, so making it inaccessible before retirement makes sense.

“The reason for the ban on early access to super by ordinary folks in ordinary times is this: if you enter retirement as a financial trainwreck then your living and medical expenses will be a burden on taxpayers that they cannot recoup, even in part.

“An analogy is compulsory third-party insurance. If you inflict auto and medical expenses on another driver, then that driver should be able to recoup those expenses from your insurance company.”

But Professor Kingston says these aren’t ordinary times and conditional changes to the system are reasonable.

“I agree that COVID does constitute a case for allowing some early access to super. Ideally, this early access would be confined to deserving cases but in practice it would probably be too costly to check out whether any given case is deserving or not.”

Got a work-related question? Send it to Work Therapy: jonathan@theinkbureau.com.au

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