A high number of young workers closed or drained their super through the COVID-19 early release scheme, and the lost retirement savings are expected to heavily hit those least able to afford it — especially women.
The scheme, which closed at the end of 2020, allowed those experiencing financial hardship to withdraw up to $20,000 over two tranches, with 3.4 million Australians taking out about $36 billion.
According to a new analysis by the Australian Institute of Superannuation Trustees, nearly one million workers under the age of 35 either closed their accounts or now have less than $1000 in super.
In addition, more than 73,000 Australians lost insurance cover linked to their account.
The analysis showed young workers were twice as likely to close their super accounts compared with members over 35, and women were more likely to do so than men in the same age group.
AIST chief executive Eva Scheerlinck said the burden of the COVID super gap would be borne by low-paid workers, women and those in insecure employment — those who were already suffering disadvantage and facing a retirement savings shortfall.
Noting that a 30-year old who withdrew $20,000 through the scheme could end up tens of thousands of dollars worse off in retirement, Ms Scheerlinck said many Australians who accessed the scheme would find it difficult to make up the lost ground without Federal Government intervention.
“Young women, in particular, will struggle to make up the COVID savings gap as many will be entering the phase of their life when they take a career break to have children and their employer super contributions are on hold,” Ms Scheerlinck said.
AIST’s pre-Federal Budget submission will recommend a one-off government contribution to the super accounts of low-income earners — those earning less than $39,837 per year — who accessed their super early.
The contribution would be based on the proportion of balance withdrawn and capped at $5000, AIST said.
“Addressing the COVID super gap will not only ensure Australians aren’t penalised in retirement for an economic downturn driven by a health crisis that they had no control over, it will also reduce the extent to which they are required to rely on the taxpayer-funded age pension in retirement,” Ms Scheerlinck said.
AIST is also urging the Government to resist pressure from backbenchers and stick to the legislated timeline to increase the compulsory super rate from 9.5 per cent to 12 per cent by 2025, which it says will be vital for low-income earners to achieve financial security in retirement.
Former Labor prime minister Paul Keating, the architect of Australia’s compulsory superannuation system, was highly critical of the early release scheme, saying it would force future retirees to rely more heavily on the aged pension.
Mr Keating also says there is no economic case for the rate increase to not go ahead.