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New data shows more than 1.3 million Australians financially impacted by COVID-19 have applied to access their super early, taking out an average of $7,546 from their nest egg. Canstar reveals the impact of accessing your super early and how much members would need to salary sacrifice in the future to make up the money by retirement.
The Australian Prudential Regulation Authority (APRA) released the latest weekly numbers on the COVID-19 Early Release Scheme on Monday, detailing information about applications received from super fund members between 20 April and 10 May.
Of the $9 billion so far withdrawn, the figures show super fund members have taken out an average amount of $7,546 – well below the allowable $10,000 withdrawal amount.
Canstar finance expert Steve Mickenbecker said this may point to a younger demographic of applicants.
“It could also suggest that whole superannuation balances are being wiped out,” Mr Mickenbecker warned.
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How can super fund members recover the loss of their early withdrawal?
Canstar research analysts crunched the numbers to provide a hypothetical scenario of how someone taking out the average amount could make up the withdrawal down the track.
It was found that a 40-year-old super fund member who accessed the average payment of $7,546 early would cut their retirement savings at age 67 short by approximately $21,769.
If this same super fund member saw their financial position improve in 12 months time and wanted to make up the shortfall by making contributions to their super, Canstar’s analysis shows they would need to salary sacrifice approximately $67 per month until retirement. Here’s how we worked that out.
Difference that early withdrawal of super can have on retirement account balance
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| Base Scenario: No early withdrawal, no salary sacrifice | Scenario 1: Early withdrawal, no salary sacrifice | Scenario 2: Early withdrawal, salary sacrifice | |
|---|---|---|---|
| Starting age | 40 | 40 | 40 |
| Average starting balance | $51,740 | $51,740 | $51,740 |
| Average early withdrawal amount | – | $7,546 | $7,546 |
| Monthly salary sacrifice required to reach base scenario end balance | – | – | $66.78 |
| Total amount salary sacrificed | – | – | $14,053 |
| Account balance at age 67 | $520,833 | $499,064 | $520,833 |
| Difference to base scenario retirement balance | – | -$21,769 | – |
Source: www.canstar.com.au – 18/05/2020. Based on a 40-year-old with a starting balance per APRA Annual Superannuation Bulletin (35 to 44 year old age range), starting gross annual income of $86,237, growing 2.1% annually, per ABS Weekly Earnings and Wage Price Index, retiring at age 67. Person’s wage is assumed to have decreased by 20% for the first year of the simulation (so they qualify for the early access scheme). Average early withdrawal amount for Scenario 1 and 2 is applied to balance at the start of the fourth quarter of the first year, and is based on APRA’s COVID-19 Early Release Scheme 18 May 2020 data. Scenario 2 assumes person begins salary sacrifices at start of third year, with amounts paid into super fund quarterly. Employer contributions are presumed taxed at 15%. SG contribution amounts per Government announced rates. Investment returns assumed to be 7.90% per APRA average 10-year annualised rate of return. Net performance deducts average fees calculated at the start of each year and based on products in Canstar’s database for the person’s age and balance (to the nearest $20,000 up to a maximum of $140,000); to account for diminishing dollar based fees as the balance increases. Average life insurance premium of $189.34 is assumed charged at the end of each year based on products in Canstar’s database for an average balance of $80k and age of 45 years old. End balance at retirement and total salary sacrifice amounts are shown in “today’s dollars”, i.e. they have been adjusted for inflation. Please note all information on income, annual superannuation fees and performance returns are used for illustrations purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.
→ Related story: How to make voluntary superannuation contributions
Are applications being approved, how long does it take to receive the funds and where is the money coming from?
The data shows that, so far, a total of $9 billion has been accessed by super fund members, 1.34 million applications have been received and 1.19 million have been paid.
According to APRA, while 88% of applications have been paid, 10% are still in the process and only 2% have been declined.
Super fund members are waiting an average of 3.3 business days to receive their withdrawn super after receipt of the application from the Australian Tax Office, and 94% of people have been paid in five days or less.
Analysis of the APRA data shows the highest volume of applications have been to the following four funds:
- Australian Super – 180,440 applications, more than $1.1 billion paid so far, claimed by 8.37% of its members
- Hostplus – 151,662 applications, more than $909.8 million paid so far, claimed by 12.7% of its members
- Sunsuper – 139,373 applications, more than $932.6 million paid so far, claimed by 8.64% of its members
- Retail Employees – 132,628 applications, more than $811.9 million paid so far, claimed by 6.54% of its members
Mr Mickenbecker said Hostplus’ higher percentage of members claiming was likely due to its higher mix of young and casual workers, as well as restaurant and tourism shutdowns.
“Retail Employees percentage of members claiming is lower than expected, but perhaps reflects that some of the larger employers, like supermarkets and hardware chains, have not shut down,” he said.
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