Industry Super Australia (ISA) has warned that the SG increase must go ahead to avoid “significantly lower” retirement incomes and a spike in the age pension that the organisation believes would be funded by higher taxes.
“People know that by [up-ending] the whole purpose of super and then cutting contributions, the government is thinking about the [short-term] and ignoring how it will lumber people with tax hikes to support millions more scraping by on the pension,” said ISA chief executive Bernie Dean.
New research from ISA shows that a 30-year-old who withdraws the full $20,000 would have $50,000 of additional age pension entitlements, while a couple who both draw the full amount would receive $100,000. But that still wouldn’t be enough to cover the lost super, meaning the two case studies would still be $41,000 and $80,000 worse off in retirement respectively.
“The community knows the government’s dealing with a crisis, but it doesn’t make sense to backflip on the promised super increase when you’ve just let people raid their savings to prop up spending,” Mr Dean said.
“This is just reckless, and the community can see that from a mile away. How else do politicians think people are going to rebuild their nest egg and avoid working until they drop? Rebuilding balances now is critical to avoiding the worst impacts of higher taxes, less in retirement and a slower economy.”
The Grattan Institute has previously suggested that any shortfall in superannuation as a result of the early release scheme could be made up by higher age pension entitlements while still putting less pressure on the federal budget than the extra super tax breaks that would result from the SG increase.
“Although individuals can choose to withdraw and spend their own money under the scheme the resulting increase in age pension entitlements must be funded by others – likely through higher taxes than would otherwise be the case,” ISA said in its research.
“This appears to have been overlooked by many proponents of early access to preserve retirement benefits. The costs are so significant because of the loss of compound market rates of return that significantly exceed wages growth and borrowing costs for sovereign governments.”
Early super withdrawals have surpassed initial estimates of $27 billion, and are now expected to reach $42 billion. Withdrawals currently stand at $32.2 billion.
