Data from the Australian Bureau of Statistics (ABS) has revealed how the Australians who took advantage of the superannuation scheme spent their money.
In 2020 the Australian government implemented the initiative, which allowed early access to superannuation to help combat the financial hardships caused by COVID-19.
Although the scheme was met with mixed reviews due to its potential long-term drawbacks, it allowed people to financially cope with national and state lockdowns.
Those who were eligible were able to access an initial payment of $10,000 in June 2020 and another $10,000 in the following months.
ABS Director of Household Economic research Dean Adams said that the average amount accessed was $17,441.
“The average single withdrawal was $7,728 for the first opportunity and $7,536 for the second,” he said.
Superannuation Minister Jane Hume has praised the scheme calling it an “overwhelming success.”
“The Morrison government acted decisively in the national interest to support households and businesses and address the significant economic consequences of the COVID-19 – the success of this program proves that it was an effective measure.”
“The scheme was a flexible option, and more than 3 million Australians weighed up the decision and decided that withdrawing their super was the best financial decision for them.”
“Offering prudent and limited access to superannuation prior to retirement is consistent with the objective of balancing living standards pre- and post-retirement,” she said.
In total, $36.4 billion of superannuation was withdrawn early, $9 billion less than the predicted initially predicted.
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How many people took advantage of the scheme?
According to RateCity, as of December 2020, over 3.4 million had accessed their super, totaling $35.8 billion, and 1.4 million made a second application.
Eligibility for the scheme was restricted to JobSeeker or JobKeeper recipients or those who were made redundant, whose hours were reduced by 20%, or whose small businesses had experienced a 20% reduction in income.
What did they spend it on?
The ABS survey revealed that 29% of people used their super to pay rent or make mortgage repayments.
A further 27% of people used the funds to cover household bills, and 21% paid off personal debt like credit cards and car loans.
A small group of people (13%) added the money to their savings accounts, and about 12% responded ‘other’.
Matt, 26 and his partner were a part of the latter group, who used the extra funds to go toward a deposit on a property, despite the fact they were both ineligible for the money.
The pair were amongst a group of Australians who weren’t deterred by the potential $12,000 fine from the Australian Tax Office for providing misleading or false information.
Speaking to Business Insider, Matt said that they were subsequently rejected for a loan as dipping into their super flagged them as suffering financial hardship.
“My loan advisor exhausted every avenue he could to try to get us finance, [including] the big four and many smaller financial institutions, but no one would go near an applicant that has taken super out,” he said.
In an interview with Business Insider, Financial Advisor Adele Martin said she had found it was the younger generations using the funds to enter the property market.
Although Ms Martin was among many financial experts who discouraged Australians from going this route, the liberal party quietly supported the move.
Liberal MP Tim Wilson came under fire when he encouraged his Twitter followers to use their super to fund a property purchase.
“Aiming to buy a first home and struggling to save the deposit?”
“For four more days, you may be able to access your super savings now to bring a purchase forward: earlier & cheaper,” he said.
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What are the future financial implications?
A report from the McKell Institute has revealed that the three million-plus people who accessed their super early have already forgone $4.7 billion in investment returns.
The timing of the policy lead Australians to withdraw their investment at the bottom of the market – trading around 25% below the pre-COVID peak.
Australia’s financial recovery from COVID19 saw superannuation fund indices increasing 15 to 20%, which those who withdraw their funds missed out on.
“The people who sold at this time turned one of the most popular financial sayings on its head – they bought high and sold low,” said the report.
Executive Director of the McKell Institute Michael Buckland estimated that the average withdrawal had already lost out on $2420 in returns.
“Of course, that loss only compounds over time,” he said.
Speaking with the Australian Financial Review, US Studies Centre Economist Stephen Kirchner said that people could have only realised they were selling at the bottom of the market in hindsight.
“Few would have anticipated that in the year to March 22, 2021, US equities would post their biggest gains since at least the 1950s (76%),” he said.
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Words by Nell Matzen
- Australia Bureau of Statistics household financial resources
- Mortgages and bills – how Australians spent their early super windfalls
- Hume praises’ overwhelming success’ of early access to super scheme
- Early release scheme expires with $36b withdrawn super
- A warning to people accessing $10,000 of their super this Christmas
- Early super withdrawals are being used to get onto the property ladder
- ‘The ATO can get stuffed’: Meet the Australians using their super to get onto the property ladder
- Super release slows, but almost 3 million Australians have sucked billions from retirement savings
- Early super withdrawals cost $4.7 billion in lost returns
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