The extraordinary government response to the current health crisis gripping the world has been extremely well directed and flies in the face of history, showing the current Federal Government has learnt from the mistakes of the past, with one exception – the early release of super.
During the last global pandemic, policy makers tightened monetary policy, largely misdirected any fiscal aid, raised trade barriers and increased the regulatory burden on banks and industry. Current day policy makers have clearly learned from those mistakes as the current response from most governments around the globe has been the complete opposite. Encouraging spending, targeted fiscal relief, reduction in red tape, encouraging retail lending and legislating various repayment holidays across different sectors.
However, by making the potential early release of $10,000 tax free from super, policy makers have pulled the wrong reign. It is estimated that this policy could see up to $50 billion drained from the industry, however the knock on impact is also the potential ‘lock in’ of losses due to recent volatility in equity markets, thus impacting the remaining balance of those taking advantage of the early release measure, but also impacting the values of those who aren’t eligible or choose not to.
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. The broader issue at play is that in order to provide sufficient liquidity for early redemptions, many industry and retail funds will be forced to capitalise on investment losses, rather than wait for inevitable market rebounds, thus impacting returns across the entire industry.
It is also 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, thus placing enormous future pressure on a budget that will be feeling the pressure from current stimulus measures for years to come. Other impacts could be complete closure of smaller funds, risking loss of important insurance for individuals.