More proof superannuation isn’t a genuine retirement pillar

In his explosive expose’ on Australia’s compulsory superannuation system (here and here), Dr Cameron Murray argued that superannuation is not a genuine retirement policy because, among other things, it can be with withdrawn well before the official retirement age of 66 (rising to 67):

Among other things, super can be spent many years before retirement, beginning anywhere from age 55 to 60, even though the retirement age specified the pension legislation is 66 to 67

Superannuants can withdraw their money eight years earlier than the age pension, in their mid-50s. Indeed, at age 60, superannuants can remove all their superannuation balance and spend it on consumption goods immediately. Details like these (and others[4]) show that superannuation is not a retirement income system…

Many financial planners advise intending retirees to spend a lot of their super quickly in order to shelter it in income-test-exempt assets such as housing and qualify for the pension…

Today, a new report published in the Herald-Sun further highlighted Dr Murray’s claim, revealing that tens-of-thousands of Australians are attempting to access their superannuation even earlier:

The number of cash-strapped Australians accessing their superannuation early to pay for medical expenses such as weight-loss surgery or IVF and to meet mortgage repayments has soared, alarming new figures have showed.

New statistics from the Australian Taxation Office found between from July through to December last year there were more than 34,400 applications for early access to super based on compassionate grounds.

Of these 58 per cent were successful, allowing Australians to tap into $292.4 million of their retirement savings.

The average amount accessed was $15,200.

This rose 11.7 per cent from 30,800 applications in the six months prior from January to June 2019 and of these 57 per cent of applications got the green light.

As a result Australians accessed $259.4 million early.

While the numbers here are obviously relatively small in the overall scheme of things, how can anyone genuinely call superannuation a retirement pillar when it legally allows one to withdraw all of their savings tax-free, and spend it as they see fit, a full six years (soon to become seven) before the eligibility age allowing access to the Aged Pension?

Leith van Onselen
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Comments

  1. There should be no grounds beyond a terminal diagnosis.

    On that, I’m surprised it they haven’t increased the preservation age. Wouldn’t be surprised when the move from 55-60 is complete it will be kicked off again from 60-65. Anyone under 40 in 2024 likely the target.

    • Ummmm. What’s the fuss about? There is a difference between the super preservation age and the aged pension age.

      Because they are not the same thing.

      But beyond that, even, what is to be done? Scrap super in favour of even MORE immediate consumption? I mean, really.

      Hate super? fine, but what’s the alternative?

  2. The pension age rose from 60 to 67……after people like me were given a presentation age of 60 on our super.

    It would be unfair to retrospectively not let me have my money.

  3. Tassie TomMEMBER

    Regarding “compassionate” release of super – I wonder who decides whether or not it should be allowed to be released?

    If one was certain that their superannuation would be accessible for medical expenses if required, then one would be better off paying an extra $4000 per year into their super at a concessional tax rate than paying $4000 per year after tax for private hospital cover that they might never need.

    Now THAT would bring on the private health insurance death spiral.

    • Mining BoganMEMBER

      Oh, I like that. I’d be in on that straight away.

      Anyone going to tell me why it wouldn’t work?

      • Unclear what is being advocated here.
        Save in super and then go private if needed and self-pay?
        Or save in super and go public anyway (which would mean you ought not to be privately insured so the example is moot).
        One admission for major surgery punctuated by a complication or 2 will erase your decades of saving pretty quickly and see you dipping into your other non-health savings at a good clip.
        But take a punt, what could go wrong?

        • Major surgery is covered by medicare and almost always done in the public system anyway.
          The only thing private health insurance is good for is jumping the queue on elective surgery. That is within the realms of self insuring for.

          • Mining BoganMEMBER

            See, that’s the only reason I still have it. Being very active but in the middle of middle-aged I don’t want to wait to have a knee or shoulder fixed. But say $15k for an ACL it can make some sense to self insure if there’s already enough in super for a reasonable retirement lifestyle.

            The big problem to watch out for though is the LNP getting their wish and ending Medicare completely.

      • Anyone going to tell me why it wouldn’t work?

        Pretty sure you nailed it with:

        “The big problem to watch out for though is the LNP getting their wish and ending Medicare completely.”

        Though to be fair they will do that regardless…

        There’s also the obvious problem that if the purpose of super is a retirement fund then you shouldn’t be dipping into it before then for anything less than life-threatening medical expenses (which should be covered by Medicare anyway, assuming the LNP hasn’t disassembled it by then).

        It sounds very similar to a construct called a HSA in the states, which is probably reason enough to let it through to the keeper.
        https://en.wikipedia.org/wiki/Health_savings_account

        • Mining BoganMEMBER

          Oh, I get it. It will only work if you’re already rich and don’t need it anyway.

          Sounds about right.

  4. One of the weaker arguments against super:
    -Who says the super preservation age should be the same as the pension age (inaccurately labelled as the ‘official retirement age’
    -All the evidence suggests that most with meaningful super balances don’t piss away their money (see the recent Productivity Commission report)
    -If people are ‘inappropriately’ getting early access to super, then tighten it up.

    Personally I’m way against super, and I can think of many reasons to not have the current system. But the arguments presented here don’t really qualify as arguments.

  5. Again….. a clear lack of research to support your key arguments. go and read this…
    https://www.ato.gov.au/Individuals/Super/Withdrawing-and-using-your-super/Early-access-to-your-super/

    Pretty straight forward as to how you can (and how difficult it is) to access superannuation early. And as others have said, preservation age and age pension age do not have to be the same. Bottom line, everything written above provides zero support for the anti super argument.

    Let me just say, the flaws in the arguments recently published around superannuation returns, how super funds operate and now basic superannuation legislation is starting to give me pause as to just how accurate Macrobusiness’s arguments are in areas where I am less learned.