More than 50,000 people have emptied their superannuation accounts under COVID-19 emergency measures, prompting concerns about the long-term financial impact on young people.
Industry Super Australia officials told a House of Representatives committee hearing that about 5 per cent of those who have obtained early access to their superannuation have withdrawn all their funds.
The government has promoted the success of the scheme in helping soften the financial blow to households from the COVID-19 economic shock.
By early this week more than 1.2 million people had unlocked around $10 billion in retirement savings through the program, eclipsing the amount of support provided so far through JobSeeker and JobKeeper assistance or the initial $750 payment to households.
But superannuation industry figures have warned of the long-term consequences of the controversial measure.
The retirement savings of a 30-year-old on an average income who withdrew the full $20,000 allowed under the early access scheme would be $80,000 lower by the time they reached the end of their working life, according to Industry Super.
Chief executive officer Bernie Dean decried the extent to which young people were running down their super balances.
"This is no cause for celebration that tens of thousands of younger Australian workers don't have anything in their retirement savings accounts," Mr Dean told the committee, chaired by Liberal MP Tim Wilson.
Concerns about the early access scheme are feeding into an intensifying political stoush over compulsory superannuation contributions.
In 2014 the Abbott government froze the Superannuation Guarantee at 9.5 per cent until mid-2021, a move Mr Dean said had already shrunk the retirement nest egg of a 30-year-old on an average income by $100,000.
Under the current timetable, compulsory contributions will gradually increase from next year to reach 12 per cent in 2025 and Industry Super warned any further delay would compound the blow to retirements savings from the early access scheme.
But the peak body has been forced on to the defensive after being accused late last month of inflating the losses from early access to super.
Its online calculator initially estimated the super balance of a 30-year-old who accessed $20,000 would be $97,214 lower at retirement, double the rate estimated by the Australian Securities and Investment Commission.
The regulator has written to ISA raising concerns about the assumptions used in the calculator.
Mr Dean's deputy, Matthew Linden, told the committee the discrepancy in the calculators arose from different assumptions regarding the deflator, which is the figure used to take account of the effects of inflation.
Mr Linden said the ISA's calculations were based on a deflator of 3 per cent while that applied by ASIC was 4 per cent.
Appearing at the same hearing, ME Bank boss Jamie McPhee apologised to customers for changing the cap on their mortgage redraw facility without informing them.
"We have upset our customers, we should have done better and for that we are very sorry," Mr McPhee told the committee.
But he rejected suggestions that ME Bank, which is jointly owned by the 26 industry super funds, had changed the redraw limit to buttress its own finances.
"At no point did the bank ever remove funds from customer accounts or transfer any customer funds," he said.
Mr McPhee said the bank had changed the redraw limit for 1795 because of concerns that some could fall behind on their repayment schedules if they were allowed to keep redrawing on their existing terms.
"It was in this spirit and through this lens we made a decision of adjustments to redraw limits," Mr McPhee said.
The bank had offered to reinstate the original redraw limits but only 8 per cent had asked for this to be done, the bank boss said.
But, in a sign that the downturn is biting, Mr McPhee said around 8 per cent of the bank's home loan customers have sought relief, asking for a six-month deferral on interest payments.