Hundreds of thousands of Australians have rushed to access their superannuation early as part of the federal government’s coronavirus response plan. But with more than $30 billion now withdrawn, questions are being asked about the wisdom of raiding future retirement savings to pay for the present.
Paul Keating, who as treasurer and later prime minister oversaw the design and introduction of Australia’s compulsory superannuation system, accused the government of leaning on the system to pay for the coronavirus stimulus, arguing there had been no assessment of whether people were eligible.
“There’s been no scrutiny whatsoever,” Keating told an Industry Super Australia webinar on August 4. “$20,000, all up, and you can take it.”
Is it correct that Australians have been allowed to access their superannuation early with “no scrutiny”?
Keating’s claim is overstated.
The Australian Taxation Office relies on the self-assessment system to determine whether a person is eligible to access their superannuation early.
The self-assessment system, which underpins Australia’s income tax regime, requires individuals to make honest declarations about their financial circumstances. Under this system, if an individual is found to have misrepresented their situation, they face being penalised.
In the case of the early access scheme, no accompanying documentation is required, at least at the application stage.
The take-up rate of the scheme has significantly exceeded initial expectations, with some analysis suggesting that a significant proportion of those people who have accessed their superannuation experienced no drop in income, raising questions about eligibility.
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Shortly before Keating made his comments, the tax office confirmed to a Senate hearing it had not issued any fines to individuals for accessing their super while being ineligible, nor had it forced anyone to pay tax on their super withdrawals because of ineligibility.
While this reflects the present situation, this does not mean the scheme will be free from scrutiny in the future.
In a statement, the tax office confirmed that 2.7 million people had accessed their super by August 14. It said it had stopped more than 2000 applications “for investigation” and cancelled more than 130.
The tax office has also noted it is conducting a “pilot” program in an attempt to determine the level of ineligibility.
It has also warned that should it find individuals accessing their superannuation who were not in financial hardship, or who were attempting to minimise their tax, “we will consider taking further action”.
While such action appears to have been applied sparingly, it is a stretch to say there has been “no scrutiny whatsoever”.
To some extent, it is self-evident that eligibility would not be heavily scrutinised at the point when people are given access to their retirement savings, given the scheme relies on the self-assessment system.
Whether the scheme represents good public policy is a different question.
How does the scheme work?
On March 22, as COVID-19 continued to spread in Australia, Prime Minister Scott Morrison announced a series of crisis response measures to help insulate individuals and businesses.
Among them was a provision allowing people in financial stress to access their superannuation early by withdrawing up to $10,000 before July 1, 2020, and up to $10,000 after July 1, 2020.
At the time, Morrison explained the measure would be available “through a simple declaration to the tax office”.
Detailed eligibility criteria are set out on the tax office website.
Citizens or permanent residents of Australia and New Zealand must need the COVID-19 early release of super to assist them in dealing with the adverse economic impact of the pandemic.
In addition, a person must either be unemployed or eligible to get the JobSeeker payment, Youth Allowance for job seekers, Parenting Payment, Special Benefit, or the Farm Household Allowance.
Alternatively, individuals are eligible if they were made redundant, experienced a drop in working hours of at least 20% or, as a sole trader, experienced a drop in turnover of at least 20% from January 1, 2020.
Data published by the Australian Prudential Regulation Authority shows a rapid increase in the number of applications since the scheme was announced in March.
By August 9, about $31.1 billion had been withdrawn, with an average payment of $7,689.
About 97% of the total applications submitted had been paid as at (August 9), with a further 1.4% “in progress”.
Treasury initially predicted that $29.5 billion would be withdrawn under the scheme by September 24. Well in excess of that amount has already been accessed.
Following a decision to extend the scheme for three months until December 31, a move announced in the July budget update in response to Victoria’s second outbreak, Treasury is now predicting $41.9 billion will be taken out by the end of this year.
The head of Treasury’s retirement income policy division, Robert Jeremenko, told a July 30 Senate committee that the revised estimate for withdrawals was “still around 1.5% of the total superannuation pool”.
“So it’s not a significant proportion,” he said. “Obviously, depending on the particular funds and investment choices, there may be some flow-on impacts, but I would have thought they would be very minor.”
How does the tax office monitor the scheme?
The tax office website notes that it had detected some “people doing the wrong thing”. “In some cases, we have stopped applications and prevented super money from being released,” it says.
“In other cases, we review circumstances after an application has been processed to ensure the integrity of the program.”
The tax office says it has a number of tools available at its disposal in order to make compliance checks. It now requires almost all businesses to report payroll data via a software system known as Single Touch Payroll. Every time a business pays an employee, they must report this information to the tax office, allowing it to monitor changes in income.
The tax office also has an extensive data-matching program, cross-checking information with other government services such as Services Australia (Centrelink), Child Support and other third parties (for example Uber and Paypal).
As noted, the tax office relies on the self-assessment system.
As it explains in a document outlining the design and implementation of the system for APRA-regulated superannuation funds: “An individual will self-assess to determine eligibility for COVID-19 early release of super and certify their eligibility in the application. Evidence is not required in the application process.”
However, the tax office does warn “we are advising individuals to retain evidence to support their application.”
On its website it further warns:
If we find that you have applied for COVID-19 early release of super when you do not qualify, or mainly for the purpose of obtaining a tax benefit (for example, as part of a re-contribution strategy involving the claiming of a personal super contribution deduction), we will consider taking further action.
The tax office’s Second Commissioner, client engagement group, Jeremy Hirschhorn, told a July 30 Senate hearing that the tax office has information on “everybody who has claimed”.
“We have information from systems in relation to things like how much people have been paid under Single Touch Payroll or whether they are in continued employment and whatnot,” he said.
But Hirschhorn said while such detail was informative, it could not definitively determine eligibility. For example, it could not assess one of the key eligibility rules, whether an individual had experienced a drop in working hours of at least 20 hours.
“One of the tests is based on hours; it’s not based on remuneration,” Hirschhorn said.
“There are various tests on why you can be eligible. We have information which gives us hints that somebody may not be eligible, but it doesn’t tell us that they’re not eligible.”
Nor can the tax office quickly assess whether an individual has recently lost their job, another key eligibility criterion.
“We don’t know at the time they apply,” Hirschhorn said. “We might have reasonable information a month later when the next Single Touch Payroll comes in. So that’s why it’s based on self-assessment.”
How many of the people applying are ineligible?
At this stage, it is difficult to determine the extent of ineligibility.
Hirschhorn said while the tax office was examining some “hundreds” of applications as part of a pilot study examining eligibility, “at this stage, we do not see that as affecting our process when we approve applications”.
“Again, it’s based on self-assessment. We work on the assumption that Australians are honest. This is about getting emergency money to people. So we will never have enough information to reject quickly. We will give people their money on the basis of their say-so. We are not proposing to do a compliance program before the release of the money.”
Hirschhorn said the tax office does reject a small number of applications.
“That is generally when somebody has applied twice,” he said. “You’re only allowed to apply once in the first year and once in the second year. We are rejecting people in the second round who were temporary visa holders in the first round. So we do reject some.”
However, Hirschhorn confirmed the tax office to July 30 had not issued any fines or warnings to individuals for accessing their super when ineligible, nor had it forced anyone to pay tax on their super withdrawals because they were ineligible.
Data analytics company illion, along with economic consultancy AlphaBeta, analysed the de-identified information from more than 10,000 Australians who withdrew their superannuation.
It reported that 38% of the people accessing superannuation had experienced no drop in their income during the COVID crisis; one in five actually saw an increase in their income of more than 10%.
“With no requirement for documentation to prove income loss prior to allowing access to early super, it raises the question of whether they really needed the extra money,” illion’s report said.
It also found that the money was spent rapidly, with almost half of the total money withdrawn spent on purchases in the first fortnight.
“On average, Australians withdrew around $7495 and spent an extra $3618 in the first fortnight, compared with what they spent in a normal fortnight before receiving early super,” it said.
“As with the first round of early super withdrawal, people have used this money to increase their spending, not simply maintain it. Almost two-thirds (64%) of this additional spending was on discretionary items such as clothing, furniture, restaurants and alcohol.”
AlphaBeta director Andrew Charlton, who worked as an economic adviser to former prime minister Kevin Rudd during the global financial crisis, said in an opinion article published in the Sydney Morning Herald in June that eligibility criteria were very broad and included anyone who had experienced a period of unemployment or a 20% reduction in hours during the course of 2020.
“No time period is specified, so anyone — including millions of casual and part-time workers — who had even a weekly fluctuation in hours over the past five months could theoretically qualify.
“Second, there was no requirement for any supporting evidence, no income verification and no need to prove that the lost income hadn’t been made up with government support. Applicants needed merely to tick a box. The whole process can be completed online in five minutes and then up to $10,000 arrives within five days.”
What the Australian Taxation Office says
A spokesman for the tax office said the suggestion that the scheme was being accessed with no scrutiny was “factually incorrect”.
The spokesman said as at August 14, $33.3 billion had been approved by the tax office for payments to 2.7 million applicants.
“The ATO has been undertaking compliance since the commencement of the scheme,” the spokesman said.
“Like Australia’s income tax system, the scheme is designed on self-assessment. The onus is on the applicant to ensure they meet the eligibility criteria, as well as ensuring the information they provide is correct.
“Once we receive applications, we have a range of integrity checks in place which help us mitigate the risk of inappropriate behaviour by those applying.
“The ATO continues to do significant compliance work on the scheme.”
The spokesman said more than 98,000 applications had been rejected as a result of a previously approved application, and about 5000 individuals who applied to access their superannuation in 2019-20 had been warned to review their eligibility before applying for a second time in 2020-21.
“We have stopped over 2000 applications for investigation and cancelled over 130 applications to date (before payment has been made) with work ongoing to contact individuals to discuss their circumstances throughout the remaining application period.
“A review of more than 400 applicants is underway with individuals to confirm whether they met the eligibility criteria.
“Only in serious cases where an applicant has deliberately applied knowing that they were not eligible will we apply penalties.”
Principal researcher: Josh Gordon, economics and finance editor
- Paul Keating, Industry Super Australia webinar, August 4
- Australian Taxation Office, Self-assessment and the taxpayer
- Scott Morrison, Media Release, Supporting Australian workers and business, March 22, 2020
- Scott Morrison, Press Conference, March 22, 2020
- Australian Taxation Office, COVID-19 early release of super
- Australian Prudential Regulation Authority, COVID-19 Early Release Scheme – Issue 16, August 17, 2020
- Hansard, Senate Select Committee on COVID-19 pandemic, July 30, 2020
- Josh Fydenberg, Economic and fiscal update, July 2020
- Australian Taxation Office, COVID-19 early release of super – integrity and compliance
- Australian Taxation Office, Data matching programs
- ilion, New real-time data: what has happened to all that Super?, August 14, 2020
- Andrew Charlton, ‘You may have just had the most expensive coffee of your life’, Sydney Morning Herald, June 1, 2020