SYDNEY - Millions of Australians have rushed to withdraw a total of A$33.3 billion (S$32.2 billion) from their retirement savings under a controversial scheme that allows people struggling financially due to the Covid-19 pandemic to raid their nest eggs.
As the nation went into lockdown earlier this year, the federal government decided to allow those who were unemployed, had lost their jobs or whose hours had been reduced by at least 20 per cent to access up to A$20,000 from their compulsory superannuation, or retirement savings.
The financial services regulator, the Australian Prudential Regulation Authority, revealed on Monday (Sept 21) that up to 3.2 million Australians had applied to access some of their savings. Most are believed to be younger Australians. As at Sept 13, A$33.3 billion had been withdrawn.
The government introduced the scheme in April and initially planned to end it on Sept 24. But the scheme has since been extended until Dec 31.
However, superannuation funds and some economists have condemned the scheme, saying that younger Australians will be endangering their future retirement income. Many people withdrew funds after the share market plunged in April. Calculations by Industry Super Australia, which manages collective programmes on behalf of the 15 industry funds, showed that a 25-year-old who withdraws A$20,000 from his retirement savings now will have A$95,696 less when he retires.
An economist who was an adviser to former prime minister Kevin Rudd, Dr Andrew Charlton, said many Australians had accessed their retirement savings for "convenience rather than necessity". He noted that younger Australians tended to pay little attention to their retirement savings and were the biggest group to make withdrawals under the scheme, yet would "lose the most from decades of foregone returns".
"Superannuation is for retirement, not crises and it can't do both. Once money is withdrawn, it's gone," Dr Charlton, now a director of consultancy firm AlphaBeta, wrote in The Sydney Morning Herald earlier this year.
"Instead of helping people with financial hardship, the policy is kicking that hardship down the road," he added.
In Australia, employers must make compulsory contributions to the superannuation funds of their employees, amounting to 9.5 per cent of their incomes. These funds cannot be accessed until they retire or until they are aged 65.
The conservative Liberal-National government has defended the decision to allow people to access their funds, saying that the money belongs to those who withdraw it and should be accessible due to the current economic challenges.
But the opposition Labor party has attacked the decision, saying that most of those withdrawing funds are aged under 35 and will have withdrawn much or all of their savings.
A 57-year-old from Melbourne, Ms Justine Coleman, said she withdrew A$10,000 from her superannuation because her bank balance was "close to ground zero". She said she has been unemployed since late 2019.
"It upsets me, to be honest, that so many of us were forced into dipping into our super," she told ABC News.
As of Friday (Sept 25), Australia had recorded 27,000 cases of Covid-19 and 869 deaths. The city of Melbourne suffered a second wave of infections and is currently in lockdown, but other parts of the country are functioning largely as normal. There were 18 new cases on Friday (Sept 25), including 14 in the state of Victoria, which includes Melbourne, and four in New South Wales.
A recent study conducted by the ARC Centre of Excellence in Population Ageing Research and the superannuation fund Cbus found that many people who withdrew from their retirement savings showed little awareness of or concern about the long-term consequences. The study was based on surveys of 3,000 people who withdrew funds. About 30 per cent were unsure of, or unconcerned about, the consequences of their withdrawal. And about 50 per cent either underestimated or did not estimate the impact of their withdrawal on their superannuation balance at retirement.
Former Labor prime minister Paul Keating, the architect of Australia's compulsory superannuation system, has condemned the decision to allow people to access their savings.
"It is a breach of the preservation rules to just let anyone take out their money willy-nilly," he told an Industry Super Australia event last month.
"The whole point of superannuation was a great public bargain with the community: Defer consumption for your working life (and) you will get a very low rate of tax (and) ownership of the funds."