Superannuation – Balancing Our Now With Our Future
Everyone in our community has been impacted by COVID-19 either physically, emotionally, financially, socially or in every way possible. Most tragically, some of our loved ones have passed during this time and, even if their deaths were not a result of the pandemic, how they and those close to them experienced the event was greatly influenced by the virus.
I can only imagine the pain experienced by those forced to be distant when they needed to be together. My father died at home surrounded by a large family just twelve months ago and the pain for us is still so fresh. We had planned an event to honour him twelve months on, which of course could not proceed. In the context of today, we were fortunate.
Although none of us knows how long COVID-19 will continue to define our activities, we do need to ‘go up for air’, take a breath from time to time and contemplate the future. In particular, we need to consider the long-term implications of decisions we make today and how we can ensure that our entire lives are not detrimentally impacted by what will hopefully just end up being the ‘virus of 2020’. I am sure we all think about these short-term choices and long-term implications in relation to our health, education and economic well-being.
Perhaps nothing epitomises the dilemma between immediate and long-term interests more than superannuation. The federal government has made it possible for those financially affected by COVID-19 to access up to $10,000 in 2019-20 and up to a further $10,000 in 2020-21 from their superannuation funds. Faced with unemployment, reduced incomes, incapacity to make mortgage repayments and simply not being able to live, such access is undoubtedly welcomed and preferred to short-term loans, but should it be?
I am not a financial advisor, and I am certainly not going to give financial advice here, but it is worth noting that a withdrawal from a superannuation fund today results in a compounding loss over time. A 25 year-old, for example, who withdraws the full $20,000 could lose up to $120,000 at the point of retirement, and a 50 year-old could lose more than $50,000 (www.canstar.com.au/superannuation/risks-access-super-early/). Given the current low interest rates, it is worth getting some good advice before withdrawing your super.
As we make that little gasp for air and briefly contemplate our public policy needs into the future, it is worthwhile remembering that in the 1970s only about 30 per cent of employees had superannuation entitlements. In 1992, under the Keating Labor government, the Superannuation Guarantee Act was passed with super contributions covering over 70 per cent of employees and progressively increasing between 1992 and 2002 from 3 per cent to 9 per cent of an employee’s income.
As we consider the future needs of our community, let’s contemplate some simple facts.Employer contributions to superannuation have grown from 9 per cent in 2002 to 9.5 per cent in 2020, while the qualifying age for the age pension will increase by six months every two years until it reaches 67 years of age on January 1, 2024.
We should pause and consider whether our current superannuation and retirement legislation and entitlements are adequate and if whether drawing upon our superannuation at this time is indeed the best option.