How much did super withdrawals during the pandemic cost Australia?

Last updated on 3 April 2024

Did you take money out at the height of the COVID-19 pandemic? [Source: Shutterstock]

Key points:

  • Eligible individuals financially impacted by COVID-19 were able to apply online through myGov between April 20, 2020 and December 31, 2020, to access: up to $10,000 of their super during the 2019 – ‘20 financial year and up to $10,000 of their super between July 1 and December 31, 2020
  • Amounts released under COVID-19 early release of super were tax free and did not need to be included in your tax return
  • Between April 20, 2020 and December 31, 2020, the Australian Taxation Office received 4.78 million applications — totalling $39.2 billion of super requested for early release

Australian taxpayers can expect to pay up to $85 billion dollars to cover the costs of the COVID-19 Early Release of Super Scheme, according to a new analysis released by the Super Members Council.

The significant cost is mostly due to the higher pension costs of those who withdrew their savings needing to rely more heavily on government support in retirement.

A 20-year-old person in 2024 can expect to pay $3,000 more tax to cover the higher pension bill caused by the scheme, which saw three million Australians withdraw roughly $38 billion from super before retirement.

SMC modelling shows the early release scheme’s costs in higher pensions and lower super tax receipts are expected to peak at $2.5 billion a year by the mid-2060s.

The analysis shows that a 30-year-old who withdrew $20,000 from super could be left with about $93,600 less at retirement — leaving them in financial hardship later in life due to compound earnings making up three-quarters of super during retirement.

SMC Chief Executive Officer Misha Schubert said the financial toll of the early release scheme would cost both the people urged to withdraw their super and all Australian taxpayers for decades to come.

“In the early stages of the COVID pandemic, before government assistance kicked in with JobKeeper, many Australians were encouraged to sacrifice their retirement savings to support themselves,” the CEO said.

“Tragically, that will now leave many people significantly poorer in retirement.

“Those withdrawals will also cost the next generation of taxpayers in a case of fiscal long-COVID.”

Approximately 725,000 Australians effectively wiped out their superannuation accounts — of these, 45 percent were aged 25 and under, and 70 percent were aged 30 and under

“These are the devastating consequences of schemes that break super’s preservation rules. People are left with far less money at retirement and the next generation — our children and grandchildren — will have to pay higher taxes to pick up the bill for higher pension costs,” Ms Schubert said.

The SMC intended this analysis to inform its submission to the Australian Government ahead of the Objective of Super Legislation before Parliament this week which could enshrine super in law.

“Ask Australians what super is for, and they’ll tell you it’s their money for retirement. The ‘objective of super’ legislation will reflect that clear and compelling purpose in ironclad law. It will be a guiding light for all future super policy development.”

“We strongly support the legislation. It will ensure super stays strong and secure – and continues to deliver a financially secure retirement for millions of everyday Australians.”

Did you withdraw super during the COVID-19 pandemic? Let the team at Your Retirement Living know and subscribe to the newsletter for more information, news and industry updates.

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