Raiding super to pay off HELP debts would compromise retirement outcomes: ASFA

The Association of Superannuation Funds of Australia (ASFA) has urged caution regarding a proposal to allow individuals with a tertiary education fees debt (HELP debt) early access to superannuation to pay off that debt, citing its negative impact on retirement outcomes.

ASFA recommends that before any proposal to extend the uses of superannuation is considered, there should first be agreement on the purpose of the superannuation system. Current compulsory contributions will not be sufficient to finance the retirement income needs of many Australians and use of superannuation for other purposes would further compromise the achievement of an adequate level of income in retirement.

“Any proposal allowing early access to superannuation to address the funding of pre-retirement needs comes with a number of problems, the most impactful being the exponential loss of compound interest within a long-term investment like super,” explained Pauline Vamos, CEO, ASFA.

“For someone in their late 20s, each dollar contributed to super will amount to seven more in future dollars at retirement age due to compound interest. It just doesn’t make sense to forgo these future earnings to repay what is essentially an interest-free debt.

“If a person aged 30 on a salary of $60,000 per year took out $25,000 to repay a HELP debt, their final retirement savings at age 67 would be reduced (in today’s dollars) by $54,000. This would be enough to take the average balance of $429,000 (for a person of this demographic) down to $364,000, far below the estimated amount required to maintain a comfortable standard of living in retirement.

“It also does not make financial sense for an individual to pay off a debt that attracts interest at around 2.5 per cent per year by reducing their superannuation savings which have investment earnings of around 7 per cent a year on average.”

ASFA has also cautioned that such a system might actually have a high cost to government rather than providing greater revenue, due to foregone tax income flowing from people on higher salaries using salary sacrifice into superannuation to then repay their HELP debt.

“If we do not focus on Australians having enough in their retirement to pay for future expenses, particularly the ballooning health and aged care costs, we could see an even more dramatic negative impact on the economy,” added Ms Vamos.

“With any proposal, a balance must always be struck between the benefit and the practicalities and the costs of implementation, including to the funds and to their members.

“If the repayment schedule for HELP debt is too harsh then this issue should be examined independently, rather than compromising the financial stability of our future retirees,” concluded Ms Vamos.