Super members warned of ‘tragedies’ caused by early access to super
Consumer advocacy groups are warning super members only to tap into their retirement savings as a last resort. Photo: The New Daily
Australians are being urged not to withdraw money from their superannuation unless it’s absolutely necessary, as the cost at retirement will be immense.
Super Consumers Australia – the retirement savings arm of consumer group Choice – has warned members that the government’s early access to super scheme should only be used as a last resort.
Research from the consumer advocacy group found that members who withdraw $20,000 now could lose almost $50,000 by the time they retire.
Those losses represent the returns normally generated through compound interest that members will miss out on by taking their savings out before retirement.
As a result, younger Australians stand to lose significantly more than their older counterparts if they tap into their super now to cover day-to-day expenses – potentially forcing them to work for longer before retiring.
“Depending on how old you are, withdrawing money now could see you having to work much longer to make up the difference before you retire,” Super Consumers Australia director Xavier O’Halloran said.
“There are a number of financial assistance options to help people through these tough times.
“Super will be the right option for some, but you should be looking at what else is available and possible cuts to discretionary spending before raiding the cookie jar.”
Council on the Ageing chief Ian Yates said super members need only cast their minds back to the Global Financial Crisis (GFC) 10 years ago to see the damage that early access to super can cause their retirement.
“One of the tragedies of the GFC was that people crystallised their losses by taking their diminished funds out of their super accounts,” he said.
They then had no way of growing them back and, at the same time, they lost the multiple tax advantages you get from having your savings in a superannuation account.
“Our message is that, if at all possible, if your savings are in super, keep them in super.”
Mr Yates noted that members who move their savings into a more conservative investment portfolio within super have the option to put it back into higher-returning growth options later.
But he warned that those who take it out might never be able to put it back in.
Unavoidable for some
Although withdrawing money from super before retirement will significantly erode your savings, Choice policy and campaigns adviser Patrick Veyret said it will be necessary for some.
Before deciding to take that money out of super, however, Mr Veyret said it’s important to explore every other option available first.
And he encouraged anyone considering accessing their super to seek guidance from qualified professionals before doing so.
“If people are in financial difficulty, we encourage them to contact financial counsellors, not financial advisers,” he said.
“Financial counsellors offer a free and independent service. They can help people navigate through financial hardship, access government payments, and assist with any debt matters.”
Funds warn early access will hurt members
The comments from Choice and Super Consumers Australia follow similar warnings from the superannuation industry.
In March, Industry Super Australia cautioned that 20-year-old members withdrawing the full $20,000 could miss out on more than $100,000 over the course of their working life.
“Members need to tread carefully before they think of cracking open their retirement nest egg as it comes at a steep price,” Industry Super Australia chief executive Bernie Dean said at the time.
“For millions, the government early release scheme could allow them to wipe out their super balance, meaning they have to start again.”
Mr Dean warned it could take decades to recover from withdrawing large sums from super before retirement.
The New Daily is owned by Industry Super Holdings