Young workers empty their retirement nest eggs in response to the government early access program. Data on deductions for the first week of the scheme show that young workers who have lost their jobs or whose hours have been reduced were among those who have exhausted their pension savings.
Large number of complaints
Hostplus, which administers the retirement pension for workers in the retail, hospitality and tourism sectors, paid an average of $ 7,134 to nearly 85,000 applicants when the offices closed on Friday. Australia’s largest pension fund, AustralianSuper, had paid an average of $ 7,650 to more than 85,000 members.
Hostplus and AustralianSuper have younger than average membership bases, according to Australian financial review (AFR). Both pension funds had lower average payments than funds with more mature demographics. Lower average payments indicate that members can withdraw all of their savings available under the Early Access Plan, depending on the AFR.
Industry funds hit hardest
Industry super funds are hit harder than funds held by banks and individuals through this program. According to AFR, industry funds receive 3 times requests to buy back funds held by banks and individuals. Industry funds generally have a higher proportion of members in sectors affected by the coronavirus pandemic.
The early access regime
The early access regime allows people financially affected by the coronavirus pandemic to quickly access retirement pensions. Eligible citizens and permanent residents can request up to $ 10,000 tax-free in 2019-2020 and an additional $ 10,000 in 2020-2021.
Temporary visa holders added to the program
The Treasury has confirmed that it will authorize temporary visa holders to use their retirement pension. The decision is expected to see another 700,000 members of the fund withdraw approximately $ 2.5 billion from the superannuation system.
The government estimates that 2.3 million pensioners will buy $ 29.5 billion by the end of September. An average direct debit of $ 12,830 per member is expected, which is equivalent to $ 6,415 for each of the two payments.
Warning for members accessing super
Early access to retirement can provide much-needed funds now, but it has a longer-term cost. Superannuation is a long-term investment for retirement, so withdrawing funds now can have a big impact on the incomes of people in retirement.
As discussed in this stupid article, a 25 year old who withdraws $ 10,000 today could see his retirement balance drop by $ 200,000. This is based on a retirement age of 65 and an annual return of 8%.
Each redemption request is accompanied by a history of financial difficulties. Early withdrawal from retirement pension should be one of the last resort for people who are financially disadvantaged by coronavirus. For younger members who withdraw their retirement pension, the quality of their retirement can be largely dictated by their ability to “Catch Up” Withdrawn Funds Now.
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As of 04/07/2020
Motley Fool donor Kate O’Brien has no position in any of the securities mentioned. Motley Fool Australia has no position on any of the securities mentioned. We fools may not all share the same opinions, but we all think that varied range of perspectives makes us better investors. The Motley Fool has a disclosure policy. This article only contains general investment advice (under AFSL 400691). Authorized by Scott Phillips.