June 1 Economic Update

Many live large on tax-free Super withdrawals

June 1 Economic Update: Tax-free Super withdrawals are proving to be too tempting

Credit Simple is part of the illion group of companies. illion has partnered with AlphaBeta to create a weekly economic update, and we think you’ll find it useful in these strange times.

If you didn’t need it, would you access your Super early? Many of your fellow Aussies sure did, as our research shows that 40% of those dipping into their retirement funds because of Coronavirus, did so even though their income hadn’t suffered. The following analysis breaks this down further and answers “is it worth it?”

Tax-free Super withdrawals are proving to be too tempting

New real-time data from illion and AlphaBeta shows that early superannuation withdrawal has not been used as intended.

Analysis of the bank transactions of thousands of Australians who took out Super show some disturbing facts about those who withdrew it and what they spent it on. Many used the money to increase – not just maintain – their spending.

The latest data from the Australian Tax Office (ATO) confirms 1.35 million early release superannuation applications have been approved.

Nearly half (40%) of those who accessed their superannuation actually saw no drop in their income during the COVID crisis. There was no income check prior to allowing people to access their Super.

Accessing Super an expensive decision

Those who accessed their superannuation have made one of the most expensive spending decisions of their lives. While this policy was aimed as a lifeline, we’re seeing many people accessing their Super who could have otherwise kept it working away until their retirement.

People have also spent up big on their Super money: spending nearly tripled in the fortnight after the money was received, compared to an average fortnight before this money was accessed.

A third of this money was used up in the first two weeks. On average, people withdrew around $8,000 and spent an extra $2,855 in two weeks, compared with the same group’s average spending in a normal fortnight.

Sixty-four percent (64%) of the additional spending was on discretionary items such as clothing, furniture, restaurants and alcohol.

There’s also a group out there living very large on pizza and beer courtesy of tax-free Super.  These could be the most expensive pizzas they will ever eat! This money is available for anyone with a bit of Super who puts their hand up and it’s a situation that was entirely avoidable.

Other ways Super was spent

14% of the money was used to repay personal debts, including credit cards, Buy now pay later (BNPL) bills and other bills. Eleven percent (11%) of the money was spent on gambling.

Based on the compounding nature and investment returns of Super, spending this amount of Super on low priority discretionary items such as fashion and gambling could have an impact worth potentially $100,000 when it comes to retirement.

There is a chance to address this and rectify it before the next tranche of Super payments can be accessed. The next round of releasing Super should be more tightly managed, with more due diligence over whether the applicants qualify.  Tools are readily available to do this digitally.

Find out more

As COVID-19 continues to impact the economy, illion is working with AlphaBeta to provide you with weekly insights on the current state of play. Want to know more? Further data is available here.



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