Super early withdrawal on track to reach $40 billion

Superannuation early withdrawal Australia COVID-19 2020

The rush to raid superannuation accounts due to the COVID-19 pandemic has shown no signs of slowing down, with total withdrawals reaching $29.7 billion already.

That money was paid out following applications from 2.55 million people to withdraw up to $20,000 from super, if their finances had been hit hard by the COVID-19 pandemic.

That means early estimates that withdrawals could hit $40 billion – which were dismissed at the time for being very alarmist – look fairly close to the money as the scheme to offer people hit by COVID-19 early access to their superannuation is proving extremely popular.

Almost half a million Australians will have drained their super entirely

Using current projections from Industry Super Australia (ISA) by the time the scheme ends in a few months, 480,000 Australians will have drained their super funds completely by withdrawing early.

Most of those – 395,000 super fund members – are under the age of 35.

This compares to Federal Government estimates when the scheme was introduced that withdrawals would total $27 billion and be paid to 1.65 million people.

Withdrawals have been available in two payments of up to $10,000 each – the first from April to June 30, and the second from July 1 to September 24.

Regulator APRA had estimated that by the end of the financial year, around $20 billion had been withdrawn with perhaps another $5 billion requested but not yet paid out.

While ISA estimated a core scenario of claims totalling $34 billion from 2.6 million people for both withdrawals and a top figure of $40 billion, actuarial firm Rice Warner had estimated total withdrawals of $40 to $50 billion.

Second round of withdrawals still popular

It is a bit early to say who has been closest to the pin but at the moment it would not be a shock if the final figure hit $40 billion and certainly a lot more than the Government’s initial estimate which has already been blown out of the water.

Initially, many observers thought that the second withdrawal would be lower due to some members exhausting their accounts in the first tranche and allowing for a feeling that the pandemic was coming under control.

However, with major virus outbreaks in Victoria and NSW, it seems enthusiasm for the withdrawal scheme has been reignited.

APRA reported a major uptick in applications in the first week of the new financial year, with weekly applications rising from around 127,000 a week to 511,000 a week, with applications covering both financial years.

The great bulk of withdrawals have come from industry funds, which cover most workers in hard hit industries, including transport, retail and hospitality.

According to the Association of Superannuation Funds of Australia (ASFA), about 65% of early release payments have been made by industry funds, 29% by retail funds, 5% by public-sector funds, and only 1% by corporate funds by the end of the financial year.

Many super funds eke out a positive return despite pandemic volatility

The popularity of the early release scheme comes after superannuation funds reported fairly credible returns despite the savage share market falls that greeted the start of the pandemic.

Superannuation funds rode the fast share market recovery and posted an annual loss, across their “median growth” funds, of just 0.5% last financial year.

That means the average superannuation balance for men fell in value by $843 to $167,657 and the average balance for women fell by $607 to $120,693.

An impressive 40% of the funds in the balanced sector had a positive return for the year, with all of the top ten funds reporting a positive return, led by Suncorp’s Multi-Manager growth option which recorded a 3.8% rise for the year.

Diversification by funds was one of the keys to the relatively sound performance, with Australian shares down 7.6%, unlisted property down by 20.7%, international shares and local and offshore bonds up by about 4% to 5% and private equity falling 3% and infrastructure rising about 1%.

Taken together with the average fund diversification, that produced a reasonably flat return overall for most balanced funds.

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