Australia’s world-leading superannuation system is intended to provide you with a comfortable lifestyle in retirement. But, increasingly, people are being asked to use their super for other purposes, putting their golden years at risk.
Since its introduction back in 1992, Australia’s super system has been scrutinised, reworked and updated. But its purpose has mostly been clear – to provide Aussies with a good standard of living in their retirement years.
That is until recently. In recent years, there have been a number of proposals for using your super balance to fund everything from home renovations to cosmetic surgery.
There have always been avenues to access your super early on compassionate grounds, but things really accelerated during the COVID-19 pandemic.
When the virus first hit, the previous government allowed all Aussies to withdraw up to $10,000 from their super during the 2019-20 financial year, no questions asked.
It soon became clear COVID – and its associated restrictions – was here to stay and the government approved another $10,000 withdrawal for everyone in 2020-21. Analysis from the Australian Taxation Office (ATO) found $39.2 billion was withdrawn from the system over the two years.
It appears superannuation has strayed from its initial goal. So much so, that the current government is looking to put the ‘objective of superannuation’ into law and is considering submissions from industry stakeholders on the wording of any proposed changes.
Under the proposal, the law would insist that “the objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.
Using super for home deposits
The federal Opposition (unsurprisingly) opposes legislating an objective for super, primarily because it sees using super as a way to increase individual home ownership.
Under the First Home Super Saver (FHSS) scheme, first introduced in 2017, individuals can use their high-return superannuation accounts to save money for a house deposit, if they have never bought a house before.
Under the FHSS, you can make additional contributions to your super to save for a house, up to a total of $50,000. You can then apply under the scheme to have up to $15,000 released per financial year, up to the $50,000 limit.
Supporters of the FHSS claim it has boosted home ownership, but detractors point to the impact the scheme has had on overall housing affordability.
Using super for major dental care
Getting your super released early to cover medical costs has always been possible, but data released by the ATO shows applications for early release for major dental work have more than tripled since 2019.
A total of $313.4 million was withdrawn for dental work in 2022/23, up from $171.3 million in the preceding financial year. This represents an 83 per cent increase in just 12 months.
Andrew Gikas, chief councillor for the Australian Dental Association, told the Australian Financial Review that the lack of a public option for dental in Australia means many vulnerable people will be forced into making decisions such as these.
“Our public dental system is in crisis and disarray,” he said.
“The statistics are telling us that the people who are accessing these funds are the ones who can’t afford dentistry, and we have to ask ‘why?’”
Building inheritance
One less talked about use for your superannuation is as a relatively low-tax way to build an inheritance for your dependants. Governments of both persuasions have rallied against using super as an inheritance vehicle, but research continuously finds many retirees see it as a legitimate use for super.
If the person you wish to leave your super to is your spouse or a dependent child, then they will receive this money completely tax free. But if it is left to adult non-dependant children, or anyone else, then they will be slugged with taxes of between 15 and 30 per cent, depending on circumstances.
There is a way around this however. Any withdrawals made by you while you’re still alive, but over the age of 60, are also completely tax free. Which means you could withdraw all your super before you pass, leave it in an account, and then, as there is no inheritance tax in Australia, it would go to your beneficiaries tax free.
Have you withdrawn any of your super early? Do you think it’s a risk to your retirement? Let us know in the comments section below.
Also read: Super-switching adviser tactics under fire
The Opposition is right to support the idea of using super for home ownership, but doesn’t go nearly far enough. Home ownership delivers far better security in retirement than super. The current system is wrong. People should be encouraged and assisted to buy a home FIRST, then start putting money away for retirement. As it is, millions can’t buy a home but will have a few hundred thousand in super that won’t be enough to buy a home when they retire, whereas if they bought a house FIRST, then put money into super, they would have a home worth three to five times what that house would cost on retirement and be able to reverse mortgage or downsize if necessary, and they would STILL have retirement savings. Whereas renting keeps them poor for life and they retire poor.
Anyone who owns no other property (not just first home buyers, as some lose a home in a crisis), can demonstrate a saving habit and ability to make mortgage repayments, and can show genuine need, should be able to access $100,000 from super, repayable if they sell the home (unless to buy like for like in another location if moving for work) to buy a very modest home only, with repayments required to the super fund after 10 years of ownership (unless that requirement plunges them into genuine hardship putting ownership at risk).
Part of the current housing crisis is due to super taking 9% of earnings. It might be employer-funded in theory, but workers gave up pay rises and tax cuts to enable employers to fund super. That’s a huge chunk of earnings that previously workers could put toward their first home. Most are still not able to save enough in super to fund independent retirement, but it’s irrefutable that those who own a home are far better off in retirement, even if they have minimal superannuation savings. And the earlier people get into the housing market, the better off they are. Mortgage payments typically decrease year on year (except during periods of interest rate rises, which are typically limited) and the house value increases, whereas rent costs increase year on year with 0 asset gain. So the superannuation system is flawed and needs to be changed to support buying a home FIRST.
Disagree. Superannuation was never intended as a savings plan for 1st home buyers or for any other use. It has, from the start, been for retirement, nothing else.
There are plenty of schemes the banks have for saving a deposit. Maybe the government can look into a government scheme for 1st home buyers similar to the one introduced in 2017 but totally separate from your main super with checks in place to make sure those in the scheme are legit.
As far as listening to Peter (I say no to everything) Dutton, wouldn’t give him the time of day.
Well yes, especially when it seems people can just pull some out for all sorts of reasons. Superannuation is not a bank, that you can withdraw from at will.
Superannuation … “to provide Aussies with a good standard of living in their retirement years.”
Well, thst’s a fairy tale the true purpose of Superannuation is to deny those who have worked their entire life and saved money in Super the ability to receive the Aged Pension and other Pensioner benefits that those who have never worked a day in their life get for free!
If you have more than the Max amount in Assets to deny you a part Aged Pension then spend like mad to get under that threshold.
And if you are really smart quickly send cash in Super to get just under the Min threshold to claim the max Aged Pension.
Those who are really smart recieve the single Aged Pension.
If you don’t believe me then you have not done your maths homework!!
Thank you Peter. I agree.
Very true Peter, that is exactly the advice I recieved from my financial adviser prior to planned retirement. As a result I recieve a part pension. However I still feel cheated out of a full pension simply because I joined super so that I could lead a comfortable life style and travel the world, others have not planned for the future and recieve a full pension, nothing fair in that.
From my understanding Superannuation was originally designed to Supplement the Age Pension, “to provide Aussies with a good standard of living in their retirement years”, and was never supposed to replace it.
But, it seems that that has been modified over the years, where now it is seen as a Replacement for the Age Pension if you receive above the cutoff income.
Early access to Superannuation should only be approved in very limited cases, as has been the system up until now.