Troubling reports of early-release-super being used to gamble, buy alcohol or other types of discretionary spending has heightened fears the government's scheme could later prove costly for those individuals it aimed to protect.
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Analysis from Industry Super Australia (ISA) estimated about 480,000 Australians could have wiped out their super as part of the government's COVID-19 financial support initiative, before the June 30 deadline.
A staggering 395,000 of those were reported to be under-35, which has financial experts concerned a future generation could be left languishing on the pension.
BetaShares ETFs chief economist David Bassanese said the move was short-sighted and could prove costly for the future of both individuals and the government.
"Although providing income support to households during the COVD-19 has obvious merit, tapping into the superannuation system seems to us an unnecessary and short-sighted choice, as it will ultimately prove costly to both the public purse and those the government had sought to protect," Mr Bassanese said.
In March the government eased the super preservation rules to allow Australians who had lost their jobs or had hours reduced to access $10,000 in super by June 30 and a further $10,000 from July 1, 2020.
"The decision also now sets an unfortunate precedent for future governments to allow households to "dip into" their super again for a whole host of possible reasons. This threaten the long-term integrity of the whole superannuation system," Mr Bassanese said.
On average about 15 per cent of Australian workers accessed their super early.
Three states were above the national average - Queensland at 20 per cent, Northern Territory 19 per cent and Western Australia 16 per cent. Only 8 per cent of ACT workers accessed their super early.
Industry funds have supported this scheme's intent to get cash to those in dire financial need, they have already helped more than 1.4 million Australians tap into their super.
But there have been troubling reports of super being used to gamble, buy alcohol or other types of discretionary spending.
As the second stage of the early release scheme opens for the 2020-21 financial year, ISA urges members to only access their super as a last resort.
According to ISA, a 25-year-old taking out $10,000 now could have $49,000 less in retirement, a 35-year-old could lose up to $34,000 and a 45-year-old up to $23,000.
The government estimated 1.65 million would take out $27 billion from super, but already 2.1 million have taken out at least $15 billion and it appears likely demand will far surpass forecasts.
Despite the greater numbers, industry funds have been prepared to deal with the demands of this scheme.
Industry funds have paid more than $10.3 billion from super, 96 per cent of it within five business days of receiving the request from the ATO.
Industry Super Australia chief executive Bernie Dean said early contributions were like "yeast, without them you're left with a much flatter nest egg".
"To have hundreds of thousands wiping their savings out mid way through their life is a tragedy waiting to happen and it will affect everyone," Mr Dean said.
"Every Australian deserves a good life in retirement, not just scraping by on the pension."
"The Prime Minister and Treasurer must stick by their promise to increase the super rate because its critical to helping these people rebuild savings they've wiped out, and avoid tax hikes on working people to prop up more people drawing a full pension."