Superannuation funds and financial advisors are warning of the risks involved in the federal government's superannuation early release scheme that allows people to withdraw up to $20,000 from their super fund.
There are widely held concerns that thousands of ineligible applicants will attempt to access their super funds, potentially creating a log jam of applicants and slowing down the flow of funds to those urgently in need of financial support.
Financial experts also fear that those considering tapping into their retirement nest eggs are not sufficiently informed of what this will ultimately cost them in the years to come.
TG Financial's Mark Harding was concerned that people were not fully informed of the risks in accessing their super.
"A lot of young people who probably only have $10,000 to $30,000 in their accounts are more likely to draw on it because they see this as an opportunity to access money that they wouldn't normally be able to touch until they turn at least 60," Mr Harding said.
"For a lot of young people that is a long way off. They are not thinking of retirement at this point," he said.
He warned those considering tapping into their retirement funds needed to be aware that taking $20,000 out now could cost them $80,000 or $100,000 by the time they leave the workplace.
Announced by Prime Minister Scott Morrison on Sunday, the scheme allows relatively easy access to super funds through the government's myGov website and provides those hit by the COVID-19 crisis to withdraw their super to the tune of $10,000 this financial year, and a further $10,000 from July.
Industry Super Australia (ISA) CEO Bernie Dean said a survey commissioned by ISA showed that as many as 40% of those who intended to make a claim had not been financially impacted by the COVID-19 shutdown.
"It is important that those that need to access their super can do so quickly, without being caught behind an administrative logjam of ineligible claimants," Mr Dean said.
"The Australian Tax Office has assured us there is a robust compliance regime in place and those who deliberately flout the rules could face severe penalties," he said.
It has become clear that super funds will have to brace themselves for a high up-take of the government's scheme, which is part of their stimulus package to keep the economy turning over and provide some respite for those under financial duress.
By the the end of Sunday April 19, there was a total of 975,300 registrations of interest before applications opened on Monday, indicating that well over a million people would be looking to tap into their retirement nest eggs.
Treasury has estimated 1.5 million people will take out $27 billion from super schemes, but polling and other analysis suggests the take-up could be far higher - in excess of $40 billion.
Many in the financial sector have warned that redeeming superannuation should be a last resort, however, it was a situation that could be recovered without too much pain if they were able to inject the money back into their fund.
Mr Harding said some of the impact of withdrawing funds now could be mitigated if people, once back at work, undertook salary sacrifice or employee contribution options to recover their positions.
Apt Wealth Partners financial adviser Andrew Dunbar believes the government has acted wisely in a difficult situation, and that the scheme has a lot of merit.
If you need to cover your basic living costs, there's no decision, you take the money. But you do have to have a plan to make it up.- Andrew Dunbar
"You can worry about the future later, but you have to feed your family now," he said.
Nevertheless he warned that those taking up the early release needed to be aware that "there are no free lunches" and "if you take cash out now, it's going to impact you down the track".
"It's a hardship provision," Mr Dunbar said.
"If you need to cover your basic living costs, there's no decision, you take the money. But you do have to have a plan to make it up," he said.
Mr Dunbar believes the scheme could put real pressure on funds.
"The turnaround is very quick, just five days and that is going to affect super funds," he said.
"The problem an industry fund is facing is they don't necessarily have the liquid assets to pay this money out. The Australian sharemarket fell 38% and listed property trust fell 46%.
"Are funds liquidating assets now to pay this money out?
"If they are, that could affect the performance of the fund itself."
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