Struggling Australians who have taken out $20,000 from their superannuation accounts using the COVID-19 early-access program will only be one per cent worse off in retirement, research has found.
Since the scheme was announced in March, three million Australians have already dipped into their super and more than 500,000 have completely emptied their accounts.
Applicants can take out $10,000 from their superannuation in the 2019-20 financial year and another $10,000 in 2020-21.
A report has found a 35-year-old earning $60,000 who drew down the full $20,000 would retire with a super balance worth $58,000 less than if they had not withdrawn the funds because of lost earnings on their savings.
Grattan Institute economist Brendan Coates said though with the combination of age pension payments that worker would only be $900 a year poorer.
He explained the decrease in super would be made up for by higher Age Pension payments.
The Age Pension is paid to eligible Australian residents in addition to their superannuation to help them live comfortably during their retirement.
‘The median worker earning around $60,000, who takes out $20,000 in super at age 35, would see their replacement rate fall from 89 per cent to 88 per cent,’ Mr Coates said.
The replacement rate refers to the percentage of someone’s pre-retirement income that is replaced by their income when they retire.
The Organisation for Economic Co-operation and Development recommends retirees receive at least 70 per cent of their working life earnings in retirement.
‘Even if COVID means they remain unemployed for the next three years, making no super contributions, that worker would still end up with a retirement income of 86 per cent of what they earned in the years before retirement,’ the economist said.
Guaranteed superannuation contributions are set to rise gradually to 12 per cent by July 2025, but Mr Coates said a 9.5 per cent increase was sufficient to ensure Australians had adequate retirement funds.
Australians and Kiwi expats have meanwhile been warned if they wrongly withdraw from their superannuation they face a hefty $12,600 fine plus a big tax bill.
Under government rules, workers are only allowed to take out $10,000 from their superannuation if they had lost their job or seen their rostered hours drop by 20 per cent or more.
H&R Block director of tax communications Mark Chapman said those who mistakenly withdrew cash from their super could be hit with a $12,600 fine unless they managed to convince the Australian Taxation Office they had made an honest mistake.
‘Further down the track, the ATO could come back and ask for some evidence that you met that eligibility criteria,’ he told Daily Mail Australia.
‘If it turns out you didn’t, you first of all would have to pay tax on the amount you’ve taken out and secondly, you could be looking at a fairly hefty penalty.
‘The penalties would kick in if there’s been some element of culpability on the part of the taxpayer, if they knew that they weren’t eligible but applied anyway, they made some kind of false statement.’