An increasing number of Aussie superannuation fund members are breaking into their retirement nest egg as they grapple with financial hardship resulting from the COVID-19 crisis.

Latest data shows Australian superannuation funds have made 3.8 million payments to members under the government’s early release scheme since it started in mid-April, according to the Australian Prudential Regulation Authority (APRA).

This includes payments to 173,000 fund members in the week ended July 26 that added up to $1.4bn.

“The average payment made over the period since inception is $7,705 overall, and $8,547 when considering repeat applications only,” the financial regulator said.

The 3.8 million payments that 151 super funds have paid to their members under the early release scheme adds up to $29.4bn.

Some fund members have made more than one withdrawal application because they have more than one superannuation account.


Profile of early release super applicants

Men aged under 35 working in retail or hospitality and living in the Northern Territory, Queensland and Western Australia were most likely to apply for early release of their super, according to the Association of Superannuation Funds of Australia (ASFA).

Around two-thirds of early release applications are to industry super funds, and 29 per cent to retail funds, with 5 per cent going to public sector funds, and 1 per cent to corporate funds, ASFA said.

The relatively young age of early release applicants mean they typically have low super balances, and 80 per cent have been left with less than $10,000 in their accounts.

“ASFA data indicates that around 25 per cent of applicants in the sample had a balance under $6,000 and around 40 per cent had a balance under $10,000 after accessing early release due to COVID-19,” ASFA said in a report.

“Between around 5 per cent and 10 per cent had a nil or very low balance.”

superannuation statistics
Superannuation fund withdrawals statistics. Source: APRA

Super funds hold $3 trillion in assets

Superannuation is Australia’s $3 trillion pension scheme based on employers making compulsory contributions equivalent to 9.5 per cent of an employee’s annual salary.

Since mid-April super fund members have been able to dip into their retirement funds.

This is under special measures introduced by Australian Treasurer Josh Frydenberg to relieve financial pressures stemming from the Coronavirus outbreak in Australia.

Super fund members could seek permission from the Australian Tax Office (ATO) to withdraw up to $10,000 from their retirement fund, tax free, in FY2020.

They also can seek to withdraw up to another $10,000 between July 1 and December 31, 2020.

Australia’s Treasury said it expected the early withdrawal of super to cost the government $2.2bn. Strict criteria applies for withdrawals.

Members must either be unemployed, in receipt of government JobKeeper or JobSeeker payments or youth allowance, or have been made redundant or had their working hours reduced by 20 per cent since January 1 this year.

Self-managed super fund members can apply to make a withdrawal through their MyGov account linked to the ATO.

Withdrawal applications are assessed by the ATO, and if approved a supper fund will be instructed to pay the tax-free sum to the member.

However, there is clearly an opportunity cost to early withdrawal of superannuation funds.

Lost returns and lower balances

Future returns on investment funds can compound over many years but are lost on money taken out of retirement funds.

“Clearly those [funds] with members in high-risk jobs such as retail, casual employment etc will have a great number of members wishing to take advantage of these withdrawals,” stockbroker Bell Potter said.

“Unfortunately, they will come at a time where asset values have reduced for the member and the fund is already struggling with liquidity to a large move to cash.”

ASFA said the fact that it was mostly younger super fund members with low balances who were taking money out of their super account had ‘significant implications’ for the individuals’ eventual retirement savings.