Australia’s industry superannuation funds face a potential early payout of A$25bn (€13.8bn) to members who have lost their jobs due to COVID-19 lockdowns.

The Australian government last week cleared the way for the newly unemployed Australians to withdraw a maximum of A$20,000 each from their super savings — in two tranches of A$10,000 each.

Some Australian industry funds, REST and Hostplus, for example, are expected to face more withdrawals because their members work in the hardest-hit sectors – retail and hospitality, tourism and recreation.

Australia’s tourism sector has virtually shut down, while restaurants and cafes have now been locked down by government order. Their workers belong to Hostplus.

Some retailers, such as supermarket chains, are still trading, but thousands of shop assistants have been stood down as retailers close shops in reaction to lockdowns across Australia. Their industry fund is REST.

The early access superannuation arrangement has raised the potential of liquidity problems, because industry funds have a high weighting to illiquid assets, such as real estate and infrastructure.

The convenor of the Actuaries Institute’s superannuation practice committee, Tim Jenkins, said short-term demand from investors for early access to their superannuation would exceed $25bn if 1.35 million working Australians each accessed the full amount of A$20,000.

Australians had about A$3trn invested in superannuation at the end of Q4 2019.

Actuaries Institute chief executive officer Elayne Grace said some key issues included liquidity for funds and locking in losses for individual investors before investments had time to recover. Also, if superannuation balances fell to zero, there were issues around insurance, she said. Super funds and their industry bodies are pushing for the Australian Tax Office (ATO) to take charge of early release requests and to make the payment directly to the individuals.

“There may be a need for the funds and the government to look at ways to enable early access and smooth out the ability and capacity of funds to pay,” Jenkins said.

“There may be a need for the funds and the government to look at ways to enable early access and smooth out the ability and capacity of funds to pay”

Tim Jenkins, convenor of the Actuaries Institute’s superannuation practice committee

“A possible solution is for the ATO, in addition to making the determination, to distribute the payments to further streamline the process to get money into the hands of those in need quickly,” he said.

“The ATO could then invoice the superannuation funds over the following few months to spread the cash flow impact on funds.”

Members have been repeatedly warned of the financial penalty that they would incur if they started to draw down their savings prematurely.

Bernie Dean, chief executive of Industry Super Australia, urged members to “tread carefully” and only think about cracking open their super after they had taken up extra cash support on offer from the government.

“Super should be the last resort, given the impact it can have on your retirement nest egg,” said Dean.

“Members need to know that taking your super now is like selling a house at the bottom of the market- you’ll lose money you would probably have clawed back over time.”

ISA analysis shows a 20-year-old Australian who accesses the full A$20,000 available under the scheme from the government could lose more than A$120,000 from their retirement balance.

A 30-year-old who accesses A$20,000 from super now could lose about A$100,000 when they hit retirement, and a 40-year-old could lose more than A$63,000.

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