Posted on 06/04/2020
Tony D'Alessandro, Chief Executive Officer
After 40-odd years in the financial services industry, there’s no doubt that we’ve faced challenging times, however, I can safely say that the current environment is one that I have never experienced.
The recent Federal Government decision to allow early access to superannuation is completely understandable and we know that there are people who are experiencing financial hardship, but it is not without a long-term impact for individuals. The three trillion dollar superannuation industry is comprised of money owned by Australians and there is no question of who these funds belong to.
We’ve had many hundreds of enquiries from members who are looking for financial support to get them through the challenging times ahead and we are working closely and collaboratively with them to ensure they get the information they need to access their superannuation from the Australian Taxation Office, should they need it.
I praise the State and Federal Government for the innovative and continued financial support they are providing to individuals and businesses – anything that can keep people afloat for the weeks or months ahead is worthy of accolades.
As more financial options become available, I encourage people and businesses to weigh up the best financial path forward. Whilst there is no doubt the immediate need for some is dire, there are potential long-term impacts in accessing superannuation and it is our obligation to make sure the public are making an informed choice. The money in superannuation is not the same as cash sitting in a bank account.
When superannuation was established in 1992, the intention was to create a nest egg over a long period of time, big or small, for people to live off in retirement. Superannuation investment strategies are built on long-term growth, capitalising on the compound interest, which generally earns returns, that comes from years of investment in diversified portfolios.
Recent events have shown how well the superannuation system in Australia works, the fact is people have been forced to save a portion of earnings over the long-term that have allowed funds to accumulate for retirement. However, what is happening now isn’t what superannuation is designed to do. Disturbing or changing the above principles and making the savings liquid has huge knock-on effects.
For those young members, or those with low balance accounts, the impact of removing $20,000 could have serious consequences for their financial future.
For example, a young Australian aged 25 could take $20,000 from their superannuation now, and be $66,176 worse off in retirement at 67, based on an investment return of 3 per cent per annum.
*Calculations are the potential impact on your retirement balance using the following assumptions - Investment earnings of 3% per annum after inflation and investment fees, annual asset based admin fee of 0.11%, retirement age of 67, current tax and superannuation laws remain unchanged and the member withdrawing $20,000 from their account. The impact on retirement balance shown in the graph is an estimate only. Under certain conditions you may be eligible to access up to $10,000 in 2019-20 and a further $10,000 in 2020-21 from your super account. Visit www.ato.com.au for terms and conditions.
Accessing superannuation now moves the problem of funding retirement to future generations, who might see their parents and grandparents unable to retire comfortably. This should not be our go-to in a crisis and I sincerely hope it is a once-in-a-lifetime occurrence.
I recommend that in the first instance you look to other alternatives – the exceptional Government support for individuals and businesses, talk to banks and landlords about freezing mortgage and rent payments and look at what utilities providers can do for you. I stress that superannuation money should be an absolute last resort, but if you need it, we will be here to help you.
We are a not-for-profit fund based in SA with over 130 employees and have adapted to provide the level of service our members expect, while working from home. We do not have shareholders and don’t pay dividends; we are here to be there for our members.
Finally, history tells us that over the long term markets will correct – through panics, pandemics, wars, depressions and recessions. We’re all in this together and we will continue to serve our members in whatever way they need.