In the midst of the COVID pandemic, Australians facing severe economic hardship were allowed to draw on their superannuation savings to get them through a rough patch.

In theory, super is supposed to be sacrosanct, untouchable until retirement, a golden nest egg to help you live out your twilight years in relative comfort. Yet there have always been a handful of specific circumstances under which you can apply for an early release of at least some funds, including terminal illness, incapacity that prevents you from working, or if you are unable to cover essential living costs.

The pandemic super grab attracted more than 2.6 million takers.

In 2020, with COVID-19 striking, the government was rightly looking for ways to stimulate the economy and provide relief to those suffering hardship. It decided temporarily adding pandemic-related hardship to the list of exceptions felt reasonable, especially given the conditions that had to be met: to qualify, you had to have been eligible to receive JobSeeker, been made redundant, had your work hours cut by at least 20 per cent, or been a sole trader whose business had closed down or had recorded at least a 20 per cent fall in turnover. Individuals were permitted to take $20,000 in two $10,000 instalments; couples could double that amount if needed.

The move proved extremely popular. More than 2.6 million Australians accessed their super, withdrawing a total of $38 billion, much more than the $27 billion the government had forecast. Three-quarters of participants withdrew $10,000 in both rounds, and up to a quarter emptied their accounts within days of the program’s start. People in Melbourne’s north-western suburbs were almost 10 times more likely to tap their funds as those in the city’s affluent eastern suburbs, with around one in three people in areas including Meadow Heights, Campbellfield and Craigieburn releasing money from retirement savings.

And what did they spend it on? While some of the money went, as you might have expected, on essentials such as rent and groceries, plenty of it didn’t. Indeed, a comprehensive analysis of the data by George Washington University’s Steven Hamilton, ANU’s Tristram Sainsbury and Harvard University’s Geoffrey Liu shows a significant proportion of the drawdown resulted in mysterious cash withdrawals from ATMs, gambling, paying off credit cards, buying furniture and office equipment, purchases from department stores and spending on restaurants and fast food.

This is not a time to make judgments. The pandemic was an extraordinarily difficult period, particularly for Victorians stuck in rolling lockdowns. Yet, with the benefit of hindsight, the policy did not necessarily tackle that hardship, instead helping fuel online retail, takeaway deliveries and gambling. On this basis it was clearly a catastrophic mistake to let people access their retirement savings to order new sofas and punt on the horses.

The researchers estimate that on average those who withdrew the full $20,000 during the pandemic will eventually chalk up a $120,000 shortfall, in today’s dollars, due to missing out on future income the funds would have otherwise generated. They describe the program as a “cautionary tale” and “a sharp trade-off between effective macroeconomic stimulus and suboptimal retirement saving policy” – strong criticism from economists.

Back in 2020, then-treasurer Josh Frydenberg sold the scheme by saying it was “the people’s money and this is the time they need it most”. But that was slightly misleading. Super certainly is our money, but it comes with the caveat that it must be squirrelled away, in return for which we are rewarded with a beneficial tax rate and the wonders of compound interest: turning today’s $20,000 into tomorrow’s $120,000.

Super also protects us from ourselves. Some fortunate people are naturally good savers, but others (probably most of us) tend to find pressing reasons to spend today and worry about the future later: a psychological effect economists describe as being “present-biased”.

As one of the researchers, former Treasury official Steven Hamilton, recounted: “I tend to lean towards free markets and individual choice, and indeed this was an explicit justification for the policy – giving people access ‘to their own money’. But this evidence is just so powerful that a large subset of the population has difficulty making sound decisions for their long-term future – it’s one of those cases where constraining people can make them better off.”

In other words, locking our money away, with an incentive to do so, removes the temptation to spend it and – all things being equal – guarantees it will be there when we need it in later life.

Not everyone agrees. There is a broad argument that super unfairly depletes today’s pay packet, that thanks to its tax advantages it disproportionately benefits the already well-off, and that the employer contribution could be better used to help those on lower incomes to save up a house deposit.

Yet, surely, the fallout from the early-release scheme has revealed how important it is to stay the course for the greater good, showing us that super is a hard-won and fragile resource. The pandemic drawdown was a one-time deal we should never repeat and always remember.

Patrick Elligett sends an exclusive newsletter to subscribers each week. Sign up to receive his Note from the Editor.

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