Super withdrawal plan may hike pension costs

A recent proposal by One Nation, which would permit workers to access a portion of their superannuation contributions for a three-year period, may lead to increased dependence on the Age Pension, according to analysis from the Super Members Council (SMC).

SMC’s calculations reveal that if a 25-year-old full-time worker earning a median wage were to withdraw 3% of their contributions annually for three years, it would result in taxpayers covering an extra $14,000 in Age Pension expenses over the individual’s lifetime.

The council’s model indicates that the worker would receive $6,923 after contributions tax, translating to an additional $2.02 in pension costs for every dollar withdrawn.

SMC’s chief executive, Misha Schubert, stated, “One Nation’s policy will not only make Australians poorer and fuel inflation, quickly wiping out the value of any super you withdraw. Now we can see it will also leave taxpayers on the hook for up to double the amount of super that’s taken out.”

The council’s analysis considered various scenarios, including a high-earning worker with an annual income of $120,000, who would receive $9,180 but incur approximately $13,000 in additional pension costs.

Earlier this week, SMC released separate projections indicating that a median full-time worker opting for the three-year withdrawal could face a $25,000 reduction in retirement savings, while a couple might experience a decrease of around $50,000.

SMC also warned that, if the arrangement became permanent, it would effectively reduce the Superannuation Guarantee to the 9 per cent rate in place in 2013. The council estimated an average worker could have up to $132,000 less in super by retirement under that scenario.

Long-term Implications and Comparisons

The council said Age Pension spending was projected to fall from 2.3 per cent of GDP today to 1.8 per cent by 2066, but argued that allowing withdrawals could work against that trend. It also warned that funds might need to hold more assets in short-term liquid investments to accommodate withdrawals, which it said would weaken returns.

Schubert drew a comparison with the COVID-era early release scheme, under which almost $38 billion was withdrawn, saying the proposed policy would have a greater effect on retirement savings. “This latest plan to turn super into an ATM would be even more disastrous than the COVID early release scheme in wiping out large chunks of people’s pay cheques in retirement,” Schubert said.