Pandemic super withdrawals to cost taxpayers $85bn
Australians will face higher taxes to fund the pensions of those that dipped into savings under the Early Release of Super Scheme.
Early withdrawals from superannuation funds during the pandemic has caused “fiscal long-Covid” for taxpayers who now face a $85 billion bill to support more retirees relying on age pensions, according to industry analysis.
Modelling from the Super Members Council found that “all Australians will pay more” due to the Early Release of Super Scheme but younger taxpayers could pay an extra $3,000 in taxes during their lifetimes.
“In the early stages of the COVID pandemic, before government assistance kicked in with JobKeeper, many Australians were encouraged to sacrifice their retirement savings to support themselves,” CEO Misha Schubert said.
“Tragically, that will now leave many people significantly poorer in retirement,” she said. “Those withdrawals will also cost the next generation of taxpayers in a case of fiscal long-COVID.”
The Morrison government’s scheme saw $38 billion withdrawn between April and December 2020.
According to the council, around 725,000 Australians were forced to clean out their entire retirement savings. About 45 per cent of those were aged 25 and under, and 70 per cent were aged 30 and under.
As a result, taxpayers would pay $85 billion through higher taxes or fewer government services by 2085 “to pick up the bill for higher pension costs”. The council said a 20-year-old today would pay $3,000 more tax over their lifetime.
Schubert said the consequences of the scheme that broke super preservation rules were “devastating”.
“People are left with far less money at retirement, and the next generation – our children and grandchildren – will have to pay higher taxes to pick up the bill for higher pension costs,” she said.
The analysis comes as the government considers enshrining the objective of super in legislation, a move the Super Members Council said would be a crucial to prevent future proposals that promote the early withdrawal of super.
“Other proposals that promote the early withdrawal of super would similarly leave people worse off in retirement, push up costs for taxpayers, and risk weakening super returns for all Australians,” it said.
Proposals have included using super for a house deposit, meeting cost-of-living expenses or to pay of HECS and other debts.
Schubert said: “Ask Australians what super is for, and they’ll tell you it’s their money for retirement. The ‘objective of super’ legislation will reflect that clear and compelling purpose in ironclad law. It will be a guiding light for all future super policy development.”
Meanwhile, CA ANZ has called on the government to tighten rules around illegal access of super by SMSF trustees after the ATO estimated last month that $381 million had been illegally withdrawn from SMSFs in 2020 and $256 million in 2021.
“The government needs to review some of the early release of superannuation benefits rules, in particular the compassionate and severe financial hardship rules,” super leader Tony Negline said. “Superannuation is for retirement so any illegal early release means something is wrong.”
“We encourage the ATO to continue its excellent work on seeking to stop those falling into the trap of illegal early release, especially by unscrupulous operators and fraudsters. More resources should be put into this already successful initiative.”
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