AIST
Early withdrawal of superannuation savings should only ever be a temporary measure of last resort, the World Pension Alliance (WPA) has warned.
The warning is contained in a new report by WPA on how pension funds around the world dealt with the challenges of the COVID pandemic. WPA – of which AIST is a member - is a global advocacy body for more than 5000 not-for-profit pension funds managing the retirement savings of around 400 million people.
The report highlights that while COVID saw some countries allow pension fund withdrawals such schemes "should not be considered as an alternative for obtaining short-term resources."
"One can consider withdrawal of pension funds due to an exceptional situation, but only as a temporary measure of last resort. And withdrawal must be accompanied by clear and explicit mechanisms for recovering withdrawn funds," the WPA notes.
AIST CEO Eva Scheerlinck who was appointed Vice Chair of the WPA in 2019 said the report highlighted how the pension fund response to the COVID crisis varied considerably from country to country and across pension type.
While pension withdrawals were permitted in some countries including Australia, others such as Canada did not allow withdrawals for registered pension plans. Where early withdrawals were allowed, limits were generally applied although these also varied. While the US allowed pension fund withdrawals of up to USD $100,000 from defined contribution plans, many Latin American countries limited withdrawals to 10 per cent of the individual's funds.
The Australian Government's Early Release Scheme – which closed on 31 December 2020 and allowed individuals to withdraw up to $20,000 in two tranches – saw more than one third of the Australian workforce withdraw $36 billion in early release super. AIST's analysis showed nearly one million Australians under the age of 35 closed their super account or were left with less than $1000 in super after withdrawing their savings early under the scheme.
AIST has called for the upcoming May Federal Budget to include a one-off Government contribution to the super accounts of low-income earners who accessed their super early and met the eligibility criteria. The contribution would be based on the proportion of balance withdrawn and no more than $5000. "Addressing the COVID super gap will not only ensure Australians aren't penalised in retirement for a crisis that they had no control over, it will also reduce the extent to which they are required to rely on the taxpayer-funded age pension in retirement," Ms Scheerlinck said.
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