The measure as part of the government’s emergency fiscal stimulus, will allow individuals in financial hardship to take out $10,000 tax-free from their super before July, and another $10,000 in the following three months.
Individuals who are unemployed and who have lost 20 per cent or more of their income will be able to take advantage of the mechanism.
Rice Warner has almost doubled a previous estimate from Treasury that up to $27 billion will be withdrawn from the system, approximately 1 per cent of all assets held in super.
The consultant has said with increased job losses rolling out across the country, the early super raid will see total withdrawals in the range of $40 billion to $50 billion.
Westpac chief economist Bill Evans has forecast unemployment will hit 11 per cent by June.
The Actuaries Institute on the other hand, estimated demands for early super could hit $25 billion, if 1.35 billion Australians each accessed the full $20,000.
The impact of the early super release, the Rice Warner analysis said, will vary from fund to fund, particularly for industry super funds centred around the tourism, retail and hospitality sectors, which have been slugged by the pandemic lockdown.
For the funds that will bear a disproportionate share of the impact, they are set to pay out large unplanned benefits, resulting in members capitalising investment losses, rather than waiting for a market rebound.
It is feared many members will not make up the withdrawal later, resulting in retirement benefit losses as large as $120,000 for a 20-year-old, as projected by Industry Super Australia.
SuperRatings made a calculation using ASIC’s MoneySmart calculator with a growth option with an assumed investment return of 5 per cent before fees and taxes on earnings, $20,000 out of a 35-year-old’s account over the next 12 months will forego around $80,000 in future benefits.
Many members with small balances will also exit the fund completely and the cash flow from superannuation guarantee contributions will be significantly knocked from the substantial job losses, Rice Warner said.
The withdrawals are also warned to reduce cash for reinvestment in assets with depressed market prices.
For an estimated 25 per cent of funds that will lose up to 10 per cent of their members, Rice Warner commented a reassessment of cash flow, liquidity and asset allocation will be critical.
Further, it warned members exiting their funds will forfeit their life insurance.
Actuaries Institute chief executive Elayne Grace commented: “We know large parts of the community have insurance through their super fund. We want people to have access to their funds, to help them through very difficult times, but it is important to know and map the consequences.”
“The Actuaries Institute would encourage the government to commit to restoring and maintaining the integrity of the retirement income system after the crisis ends.”
Oh dear, Industry Funds could be found out !
Great time to roll out of Industry Funds while they artificially keep their valuations high.
Love the relevant example of a 20 year old withdrawing $20,000 from super. I don’t know of one 20 year with $20,000 in super (not taking into account the recent downturn). Try and keep it real and the alarmism to a minimal please.
this will unfortunately be a massive kick in the guts for effective retirement planning, not only will these funds not be made up, biut consider what they (account balances) were worth a few short months ago and consider the locking in of those massive falls, this only compounds the problem. advice is needed more than ever now, One wonders how K Hayne is sleeping right now given his desire to knobble the non bank advice sector .
K Hayne has got his Judge’s pension of $300k+ pa indexes for life to see him through. Funny how he seems to have forgotten to mention it in his final Royal Commission report.
This could become the first major industry fund scandal. I observed during the global financial crisis that they [b]didn’t[/b] mark down their valued investments (for example private equity holdings) anywhere near as much as the sharemarket. In other words, those who took their money out did so at too high a valuation, but there wasn’t much of that happening so there was no reckoning.
Here a few superfund will have very large outgoings and if they again overvalue their illiquid investments (Australian Super reduced the value of their unlisted assets just now by, if I remember, 7% when the sharemarket had dropped 30% but I am sure the difference was fully justified), then their members will suffer from these withdrawals at too high valuations. Those funds could also have major difficulties raising enough cash to deal with these large unexpected redemptions and could be forced to come knocking at a bigger fund to bail them out.
It may or may not become a scandal and it will be informative how they handle this crisis. Perhaps it will reduce the headlong rush into unlisted, opaque, illiquid investments or the government may even force them to become a little more transparent.