Australians should not have to dip into their super to cope with coronavirus - COVID-19 blog | Deloitte Australia has been saved
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We live in extraordinary times and that calls for extraordinary measures. The stakes are high and the costs will be even higher.
Given the nature and scale of this unprecedented COVID-19 crisis, it seems churlish to nit-pick any of the significant measures aimed at "cushioning the blow" of the enormous economic impacts we face.
But that does not mean that any decisions that we could ultimately regret should go unchallenged.
The move to grant early access to superannuation balances of up to $10,000 this financial year, and the same again next, for those in financial stress sits uneasily with me, although I recognise that my views — like the landscape before us — could alter radically in coming months
Indeed, I have consistently argued against early access to super as a means of helping first home buyers into the market, as some were suggesting just a couple of years ago.
The amount — $10,000 — does not sound like that much, especially if it will help you through a crisis. But this is where thinking is flawed.
It will be the younger among us, along with those already on low incomes, who would be most expected to access their super in the year or two ahead, as they are far less likely to have access to other savings.
For a person who is say, 35, who loses their job in the coming weeks, that $10,000 today will be worth just over $65,000 when they eventually retire in another 35 years.
And that's based on the average 5.5 per cent return of conservative funds for the past 15 years — including the period of the global financial crisis.
In a higher-risk-higher-return portfolio rate, where we'd expect most younger people to be, that figure is closer to $130,000 (such is the beauty of compound interest).
Given recent sharp falls in equity and other asset markets — with more likely on the way before this is over — everyone's super balance, whether young or old, wealthy or not, has already taken a battering in recent weeks. We can hardly afford to compromise these further.
A sudden, unplanned increase in fund redemptions when financial markets are already fragile will also likely have the effect of adding further downward pressure on the value of balances. However, the decision to allow reduced drawdowns by retirees — halved from 4 per cent to 2 per cent — is sensible and could ameliorate in part some of the negative effects.
We cannot and should not condemn a significant part of a generation and income demographic to an unnecessary retirement on struggle street.
Even if we put the maths to the side, we are told to expect the next six months at least to be tough. Will $10,000 make enough of an impact now to be worth that sacrifice of future comfort?
Some might argue "yes, every little bit helps". In fact, this could be taken as a good example of what economists call "lifetime income smoothing", when we use savings or borrowing to pay for those large (and sometimes unforeseen) life events — a wedding, university education, or illness.
But our super system has been carefully crafted with the specific aim of improving our economic circumstances in our increasingly long retirements and that requires preserving those payments.
However, even putting these arguments about the future cost of such a decision, I would argue that the main reason not to proceed on this path is because it is abrogating responsibility from the Federal Government.
Even in the conservative UK under Boris Johnston, there is a recognition that doing "whatever it takes" to support the health system and the economy is the responsibility of government.
People will play a crucial role in this crisis, to be sure. But they should not be asked to sacrifice some of their future retirements. Not yet.
This blog was originally published on ABC News - 23 March 2020, 2:33pm