Australia’s multi-billion dollar super gamble

Sam Hawley: Hi, I’m Sam Hawley, coming to you from Gadigal Land. This is ABC News Daily. At the height of the pandemic, many Australians found themselves with less work and struggling to make ends meet. So they jumped at the chance to access their retirement savings early. Now we know a lot more about what they spent the money on, with a new study showing gambling was high on the list. Today, we speak to one of the researchers and chat to two women who will now have a lot less in their super funds when they retire.

Courtney: So I’m Courtney. I’m 35. I work in film and I live in Melbourne. I’ve got a partner and a dog. So I was obviously having a bit of a tough time through COVID and I was in a little bit of debt. So I thought I would just take out ten grand from my super and pay it off. And I regret it now because I said to myself I would pay back that ten grand as soon as I could, and I haven’t. And I will probably do it with my tax return this year. Because I’m from England, I’ve been in the country seven years, so I didn’t have an insane amount of money in my super. It didn’t completely deplete my super, but yeah, and looking back now like I do have regrets and I don’t have regrets. Like I know I will probably when I get older if I’m not able to put that money back in. But at the time it was really useful.

Rhiannon: My name is Rhiannon. I live on the Gold Coast. I’m married with two children. I’m a nurse and I work for Queensland Health. My husband’s a chef. So at that point in time, his work had completely disappeared. Having two children and a mortgage and only one income obviously makes things a little bit stressful. My income was enough basically just to cover all of like, our outgoing bills. But like, day to day living obviously became a little bit more tight and a bit more stressful. Not having that second income to, you know, keep us like a head above water, I say. I took out 10,000 and it would say be like a quarter of what I had in my super at the time. It was probably the only way for us to survive at that time, just to, yeah, just to keep our family going.

Steven Hamilton: Hi, I’m Steven Hamilton, assistant professor of economics at George Washington University in Washington, DC.

Sam Hawley: Steven, we’ve been speaking to two women who took out some of their super during the pandemic. It’s money that they wouldn’t have been allowed to touch if it wasn’t for the former prime minister, Scott Morrison.

Steven Hamilton: Yeah. So almost three years ago in 2020, I’m sure people can remember the early developments of the pandemic. Events progressed very rapidly. We didn’t really know what to do. We didn’t have an instruction manual for how to deal with the pandemic. Scott Morrison and Josh Frydenberg came out just about every week announcing a new stimulus package to to support the economy through the pandemic. The super withdrawal program was the middle plank of three economic stimulus.

Reporter: The government’s giving eligible Australians early access to their superannuation $10,000 this financial year and another $10,000 the next, all tax free.

Josh Frydenberg, former Treasurer: This is the people’s money.

Steven Hamilton: The idea, I think, at the time was that, you know, every Australian has this big pool of cash. You know, everyone is forced to save 10% of their income. The idea is you get it in retirement. But the thought was, we’ll give them this temporary access to their superannuation up to $20,000 per person and that would help them get through the pandemic and also minimise the up-front cost to government. Around 2.5 million people decided to do this and in total they removed about $38 billion from their super accounts.

Sam Hawley: That’s not really what super was designed for, was it? When Paul Keating developed it, it was not meant to be touched until retirement, and he really lashed out at the decision at the time, saying it meant that young people would be bearing the brunt of bailing out the economy.

Steven Hamilton: Yeah, this just kind of goes to the heart of the question.

Paul Keating: Instead of job keeper, job seeker and job keeper carrying the main burden of income support from the get go, the main burden of income support is people, you know, ratting their own savings.

Steven Hamilton: Superannuation, which began in the early 80s, was made compulsory in the early 90s, was designed to make sure that people put money away up front so that when they reached retirement they would have enough money to support themselves in retirement. And just as importantly, it would mean that the federal government wouldn’t have a huge liability that it faced to try and fund these people in their retirement. Now, obviously, the super withdrawal scheme kind of reverses that. It says to people, no, actually we’re going to allow you to use this money when you’re you’re much younger. And in fact, in the pandemic, we saw that the the most common age was about 34 years old. So it was by and large taken up by much younger people.

Sam Hawley: So three years on, we now have a much better idea of how many Australians withdrew super at this time. You’ve already mentioned a lot of them were quite young, in their 30s, but what else have you learnt?

Steven Hamilton: Yeah, it’s quite staggering. You know, three years on, to understand how much data we have available to us. We can see really everything about these people, what they were earning every week, what they were spending on every week, you know, their access to government payments. And what we see is a couple of striking things. One is that the people who decided to withdraw were not that much lower income than the people who didn’t. They had slightly lower wages, but not much. They weren’t, on average, suffering a temporarily low wage period. It’s not like, you know, it was particularly people who were in need at that at that moment. But those people had much worse financial circumstances. So they were people with, you know, 75% lower savings, people with 80% lower dividends, people who were making 90% less voluntary contributions to super. So in general, their financial health was much worse than the people who didn’t withdraw, which I guess is not a surprise. It makes sense. And then what we see is the people who opted into the program, around 1-in-6 people, on average 1-in-4 34-year-olds. They spent the money very quickly. So we see that roughly 45%, nearly half, of the money was spent. And when we say spent, that means, you know, there was a debit on their account. It wasn’t an external transfer. It wasn’t money paid off debt. It was spending within eight weeks. So spending increased by 130% over the first two weeks, roughly 45% over eight weeks. And then after that time, spending returned to normal. And we see them spending on, you know, a range of categories. The largest category was ATM withdrawals, cash, and the second largest category was somewhat surprisingly gambling expenditure. And in fact, we see gambling spending on average around the same level as credit card repayments. So that’s kind of the key takeaway that we see from the spending results.

Sam Hawley: I mean, the women we have spoken to, I mean, they really needed that money, one to pay off debt, but another woman to actually make ends meet and to put food on the table because they were one whole income down during this period.

Steven Hamilton: Yeah. So let me say, this is a really, really important point. So what we notice on average is that people who withdrew their super on average weren’t experiencing a reduction in their wage relative to before. Now, of course, there are going to be cases where people were, but overwhelmingly that wasn’t the case

Sam Hawley: Okay, so before we move on, I just want to know, how on earth do you know all of that information that people are withdrawing money from ATMs, that they’re gambling the money they’re taking out, it seems like quite sort of personal information. So how have you gone about looking into that?

Steven Hamilton: Yeah. So we’ve been working on this since mid 2020. Nothing is identifiable, so the information we have is all de-identified, it’s anonymised. So we have roughly 15 million working age Australians. We have access to all of their government… kind of related information. That means their tax returns, their welfare information, their super information. And then we have a sample of roughly 700,000 Australians’ bank account transactions, de-identified. So we just see Jane Doe, you know, spent on these things in this week, withdrew super at this point and then next week spent this money on that. And so we look at this sample of individuals and we can we can study how their behaviour evolves.

Sam Hawley: And do you know from your data where most of the… We’re talking huge amount of people here, 2.6 million Australians and of course they’re not all using it on gambling… We’re not saying that, no… But do you get a sense of where they were living, where these people lived? Were they clustered in a certain area? Do you have any information on that?

Steven Hamilton: Yeah. So it’s quite interesting. So what we do have is withdrawal rates by location. Now, the highest withdrawing suburbs… Of the top 20…. almost all of them are in Queensland. I’m a Queenslander myself. The highest withdrawing suburb is the very tip of Cape York in Queensland, a remote community there. And we do observe across the country that very high withdrawal rates in suburbs with what we would call high, high levels of socio-economic disadvantage. That means low levels of higher education, low levels of income, high levels of unemployment. So that meant, you know, outer suburban, rural, regional areas tended to withdraw much more and areas that are very affluent, highly educated, tended to withdraw a lot less.

Sam Hawley: So let’s discuss the losses, because in the scheme of things across someone’s entire life, is $20,000 really that much?

Steven Hamilton: Yeah. So this is another problem, which is this is this is in fact the reason why super exists in the first place, because people tend to have difficulty translating current values into their future value. If a 34 year old removed 20,000, which is the most common withdrawal amount, then they can expect at retirement at 65 for their super balance to be $120,000 lower in today’s dollars than if they hadn’t withdrawn that 20,000. So that’s a huge impact, right? That’s not a small impact. The median super balance of someone who’s currently 50 is about 200,000. So that’s kind of like half their super balance wiped out. On average, the people who withdrew removed 50 more than 50% of their current super balance. So actually, even though it’s only 20,000, it’s really quite a dramatic impact on their on their super balance. And we don’t know whether people understood that.

Sam Hawley: So, Stephen, given that long term impact and as you say, many people might not have been aware of that impact, do you think something like this should ever be allowed to happen again?

Steven Hamilton: Yeah, So I’m forgiving of the decision to do it in the first place. What we can do now is look in hindsight and we can observe what actually happened. And I think with the benefit of hindsight, unwinding that concept of, of, of mandatory super for long run kind of benefits, I think was a mistake. And I wouldn’t, I wouldn’t do it again.

Sam Hawley: Steven Hamilton is an economist at the George Washington University in Washington, D.C. Under the current scheme, Australians are allowed to withdraw some super on compassionate grounds, including for medical treatment or palliative care. This episode was produced by Flint Duxfield, Sam Dunn and Chris Dengate, who also did the mix. Our supervising producer is Stephen Smiley. I’m Sam Hawley. ABC News Daily will be back again tomorrow. Thanks for listening.