As part of the Coalition government’s second COVID-19 stimulus package, Treasurer Josh Frydenburg announced that workers would be able to draw on their superannuation savings by up to $10,000 in 2019–20 and a further $10,000 in 2020–21, to meet immediate needs.
It highlights the Coalition’s inadequate response and its determination to shift the cost of its failure onto working people. At the same time, it is bailing out corporations.
Since its inception, Australia’s superannuation system has reinforced and reproduced the inequality within the labour force and extends it into retirement. The system shifts the responsibility of supporting retirees from government onto working people themselves, via a system that defers and redirects wages into the superannuation system.
This deferral has injected billions of dollars into financial markets, predominantly the Australian one: Australian Superannuation Funds held $2.9 trillion in assets in July 2019. It has allowed the government to justify its failure to provide adequate retirement pensions to workers because they are supposed to have enough superannuation to support their retirement.
As a result, Australia has the second highest rate of retirees living in poverty in the Organisation for Economic Cooperation and Development (OECD), with 35.5% of people over the age of 65 living in poverty, the overwhelming majority being women.
While the superannuation system is flawed, it could become even worse. Forcing workers to draw on their superannuation to survive during the COVID-19 crisis will decimate the superannuation accounts of millions of workers.
Many of these people will already be among the most vulnerable and lowest paid workers: they are unlikely to be able to rebuild their superannuation accounts. This will result in many workers living in poverty in their retirement.
If the crisis deepens for an extended period, there is a danger that workers will be pressured to draw more from their savings. This will put workers at risk of losing the built-in life insurance in superannuation funds that requires their balance be above $5000.
Age Average balance: men Average balance: women
20–24 $5,924 $5,022
25–29 $23,712 $19,107
30–34 $43,583 $33,748
35–39 $64,590 $48,874
40–44 $99,959 $61,922
45–49 $145,076 $87,543
50–54 $172,126 $99,520
55–59 $237,022 $123,642
60–64 $270,710 $157,049
Source: Association of Superannuation Funds of Australia
Beyond the short- and long-term impacts on individual workers forced to draw on their superannuation savings, this proposal will potentially spark a liquidity crisis for the superannuation funds and thereby impact all workers.
The funds only hold a certain amount of cash at any one time, which is both a form of investment and is used to disburse funds to retired members. If struggling workers start drawing down their superfunds, this will add pressure on funds to liquidate other assets, such as shares. In turn, this will prompt superfunds to sell more shares, wiping out more of the value of shares and reducing the savings of all members.
Under these circumstances, speculators such as Gerry Harvey will be in a position to buy shares at much lower value and position themselves to profit handsomely from the COVID-19 crisis. This is in addition to the same profiteers receiving a direct government stimulus.
Many workers will not have any other option but to draw on their savings. But unions must demand that companies and the government guarantee workers’ wages during the COVID-19 crisis so workers do not need to draw on savings.
Moreover, we must demand that the aged pension, along with all other welfare payments, be lifted to at least the new level of the Jobseeker Benefit.