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Dangerous early access to superannuation could lose votes for Morrison

19 May 2022
University of Sydney finance expert responds to new election promise
Associate Professor Shumi Akhtar argues that an election promise by the Coalition to help first-time homebuyers will have disastrous effects on our economy.

The Coalition could lose votes due to the seriously dangerous proposal to allow early access to retirement funds. Those following the financial markets and superannuation closely will not vote for this, younger generations will find it a band-aid solution and not sustainable and it burdens our ageing population. The Coalition could lose votes across the board.

With COVID-19’s disastrous impact on the economy, one common measure offered by various governments as part of their stimulus package was temporary early access to retirement funds which had a significant negative implication on superannuation funds. Now, the Coalition has proposed to allow early access again as an election promise to afford houses. This will have twice the disastrous effect on our economy – the pension system will collapse and house prices will be hyperinflated. 

The Australian government has already taken the desperate step of allowing people access to their retirement funds provided they can demonstrate they were made redundant or are suffering from financial hardship due to COVID-19 in the last two years.

This is an extraordinary measure by any standards and should have been accompanied by an equally cautious warning that such a move is only to be exercised in the most exceptional circumstances.

Our failure to do so means we may well see severe impacts in the coming years. Already, unscrupulous real estate agents are taking the liberty of advising investors and first home buyers that they should obtain access to their superannuation and get into the market so as to not miss out on any “bargains”. 

To avoid the vulnerable being taken advantage of in what is already a perilous situation, governments need to clearly articulate the purpose and circumstances in which individuals would be allowed to access their superannuation to finance their first home.

The effects will be damaging at every level but may be compounded depending on the age of the individual. Superannuation should only be accessed as a last resort: purely for survival.  Withdrawal for any other purpose such as property investment, leisure, gambling or any other non-essentials should be closely scrutinised in terms of its likely costs and benefits.

Early access to superannuation can be very costly; mainly because the general population is not well educated in the mechanics of superannuation. Superannuation is premised on the concept of the time value of money – the longer you have to go to retirement, the greater the timeframe for your superannuation to grow. We need simple but concise messaging so that the younger generation (X and Y-ers) can make informed decisions.

How many would still be inclined to touch their superannuation if they knew that taking $10,000 out now would mean say, the equivalent of $50,000 in the distant future? To allow $50,000 for home affordability purposes means they will have very little to none left in their super account. This will then put immense fiscal pressure on the economy, housing affordability will be impossible and the pension system will be paralysed.

This simple example critically demonstrates the sizeable impact this measure could have, especially given the vast majority of employed workers likely to access this measure will be average to low-income earners; which means they may not be able to restore their superannuation to its original levels.

This is demonstrably critical for retirees who simply would not have the time to top it back up so it will leave a huge drop in their superfunds.

In the middle of this crisis, it is important for upcoming governments to think clearly and consider the multiple and sequential direct side effects of early access to super. Despite the mounting pressure to act quickly, a few extra days to think may well be preferable to decades of damage control.

Opinion piece by Associate Professor Shumi Akhtar from the University of Sydney Business School.

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