Financial fragility, financial literacy and the early withdrawal of retirement savings during COVID-19

Abstract

Using micro-data from the 2020 Household, Income and Labour Dynamics in Australia (HILDA) Survey for a large nationally representative sample of adults aged 18-64, this paper examines the factors associated with the early withdrawal of retirement savings as a result of the coronavirus. Logistic regressions show that early withdrawal behaviour was in response to financial needs with the likelihood of making a withdrawal higher amongst the young, those classified as financially fragile, precariously employed, the unemployed, lone parents with dependent children, persons experiencing poor health and those with poor financial literacy. The results raise questions about the design of early release schemes and the objectives of the Australian retirement income system, including equity outcomes in retirement. Policy suggestions are discussed, including a call for suitable data for monitoring purposes. The latter is important if the long-term equity effects of COVID-19 related to early withdrawals are to be properly understood.