Early superannuation release no disaster for retirement incomes

The Grattan Institute has shot down Paul Keating’s, Labor’s, and the superannuation industry’s incessant scaremongering over the Morrison Government’s early superannuation release policy, claiming that it will only reduce retirement incomes by around 1% for the typical worker:

Policy makers can only justify forcibly lowering someone’s living standards during their working life – by lifting compulsory super – if we are protecting them from even worse outcomes in retirement.

Nonetheless, our modelling shows that Australians can look forward to a comfortable retirement with compulsory super contributions of 9.5 per cent, even if they take the full $20,000 from their super.

Workers on all but the highest incomes will retire on incomes at least 70 per cent of their pre-retirement (post-tax) earnings – the so-called ‘replacement rate’ benchmark used by the OECD and others.

The median worker earning around $60,000 who takes out $20,000 in super at age 35 would see their replacement rate fall from 89 per cent to 88 per cent, assuming compulsory super stays at 9.5 per cent, still well above the 70 per cent benchmark.2

Even if COVID means they remain unemployed for the next three years, making no super contributions, that worker would still end up with a retirement income of 86 per cent of what they earned in the years before retirement. And the more than 500,000 Australians that have emptied their super accounts completely, the impact on their retirement incomes is likely to be smaller since they have, by definition, withdrawn less than $20,000.

Retirement incomes would also remain adequate even for the many Australians who access their super early and work part-time or go on to take significant career breaks, such as to care for children. For example, someone who works for 32 years at the median income, and takes out $20,000 in super, will see their retirement income drop from 87 per cent to 85 per cent of their pre-retirement earnings. A median worker that only works 27 years and takes $20,000 in super would see their retirement income fall from 84 per cent to 81 per cent of their pre-retirement earnings.

Of course, some low-income Australians remain at risk of poverty in retirement – especially those who rent. But struggle even more before they retire.

And boosting Rent Assistance would do far more than higher compulsory super to help these vulnerable Australians, and without reducing their take-home pay before they retire as higher compulsory super would.

Brendan Coates also advised against lifting the superannuation guarantee to 12%, noting that it would lower wages and would hamper the economy’s recovery from COVID-19:

Before COVID-19, there were good reasons to abandon the planned increases in compulsory super. COVID-19 is just one more reason.

Higher compulsory super would reduce workers’ take-home pay and do little to boost the retirement incomes of many Australians, while widening the gender gap in retirement incomes. The Government’s early release scheme does nothing to change that story.

The government will bear much of the cost of the super early release scheme via higher pension payments when today’s workers retire.

But raising compulsory super to 12 per cent would make the problem worse, since higher super costs the budget more in extra super tax breaks than it saves in lower Age Pension spending for decades to come.4 It’s a $2 billion a year hit to the budget once super hits 12 per cent, and those extra super tax breaks skew heavily to the wealthiest 20 per cent of Australian workers.

But most importantly, higher compulsory super would also exacerbate the economic problems caused by COVID-19. Past Grattan work has shown that higher super comes at the expense of workers’ wages. And the Reserve Bank agrees: it’s forecasting lower growth in wages next year when compulsory super begins to rise.

Scheduled increases will see household savings rise at a time when aggregate demand is weak.

Raising super in the midst of a deep recession would only slow the pace of economic recovery. And that would be bad news for all Australians, regardless of the size of their super account.

Nothing readers of MB don’t already know.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. Whilst it might be correct that super costs the budget, that isn’t a fair analysis of the whole picture. Without super and the enforced saving that it provides the budget would have to find massive amount of extra money to fund peoples retirements.

    Lets take two hypothetical 24 year olds, Bill and Jane, both entering the workforce and earning $80k a year. They will both work 41 years (retiring at 65 years old) and remain on a constant salary (salary growth is not important to the example).

    Jane lives in mysteryland where there is no super (or forced retirement savings system) and apart from saving to purchase a house (which she does) she spends every cent she earns over her working life. At retirement mysteryland government has to fund her retirement income to the tune of $38k a year. If she lives until 85 this is a total of $760k over her retirement.

    Bill lives in the real world where his employer contributes 12% of his salary to a forced savings program, lets call it Super. Apart from buying a house and this forced saving through Super Bill also spends everything he earns over his working life. When Bill retires at 65, unlike Jane, he has $526k (assuming 7% annual growth and “default” fees) in his super account. Whilst the government of real world also has to contribute to Bills retirement income stream (which is also $38k / year), when Bill dies at 85 they have only paid out $234k in pension.

    So the question is. Did the tax breaks for Bill’s Super cost the real world government budget $526k or more. The answer is of course no they did not, to be clear that is no they did not!!

    By forcing Bill to save for his own retirement, the government of the real world, has decreased the retirement income stream burden on the budget. Yes it costs something, in both tax breaks and some pension, but they are still better off.

    Super is a good system, sure it isn’t perfect (nothing is), and to those that rubbish it. Provide a better alternative. Don’t just beat it down, where is your alternative proposal. Come on, money where your huge mouths are please!!!

      • So you would propose paying a 70% replacement income (lets say of there averaged last three years taxable salary) to all Australian’s when the retire and scrape the whole super scheme? Correct?

      • Also individual cases are a great way to illustrate the point and show that general sweeping statements are very often very wrong!

    • Jumping jack flash

      Super works great in theory, and as you mention in your example it is for reducing the pension burden on the government, and has little to do with providing any kind of standard of living to the retired, eventual catfood-eating workers. When super was introduced there was a lot of hand-wringing about how the government was going to pay for pensions and the boogeyman of government debt was wheeled out by Howard, or Hewson, or whoever it was.

      In the age of debt, super becomes irrelevant. It is far better for everyone, including the government, for the people to hold assets like a PPOR and a couple of IPs that increase in price as the debt grows, and are for all intents and purposes protected from falls – unlike super. Super is based on [stagnant] income and almost always tied to shares/etc which become incredibly volatile as the debt economy grows too large, as we saw in 2008, and as we see now and time and time again for the past 10 years.

      At retirement time, cashing in the debt-inflated assets for an enormous pile of someone else’s debt at the current market values will yield many, many times more money than the amount of money that super could ever provide.

      Unless their debt economy crashes and burns and cash becomes king once again, it makes far more sense to release super after an adequate amount has accumulated, say 100K at most, to use to obtain the 1m debt dollars to get on the ladder and purchase the starter house that will inflate in price, doubling every 7-10 years as the debt grows, extracting equity along the way to obtain many, many IPs all of which can be liquidated at retirement time for millions and millions of debt dollars.

      • I hear what you are saying about the volatility of shares (although I don’t agree), but you are forgetting that super money can be invested into so many asset classes other than shares. If you are feeling bullish about residential property, then no problems, have that in your super investment portfolio.

        The problem with not have a super scheme, is that there is no forced savings and thus people can just spend what they earn as they go along and the govt. will sort the rest out upon their retirement. Without super there is no personal responsibility!

    • Agree, MB (like the Grattan Institute) studiously ignores future demographics as they do not fit the alarmist narrative and ‘charts’ on population growth and ‘immigration’; the argument promoted is a deflection or a ‘libertarian trap’.

      Our permanent population base is ageing as is our workforce as the baby boomer bubble transitions into retirement hence (with another 20 years to live), proportionally fewer working age tax payers to support increasing numbers of retirees expecting not just pensions but also benefits and no taxes to pay; political suicide for any government to deny them.

      (Meanwhile there is a collapse in temporary churn over of net financial contributors caught in the NOM data, majority cannot take PR, while supporting budgets for Australians, how will this revenue gap be filled, more retirees to pay significant taxes?)

      Ideologically MB and Grattan assume that the ‘hidden hand’ will compel employers from their own benevolence (surely self interest?) to pay potential increase in SCG to employees, who will then voluntarily save for their own retirement…..

      While Australia sits in the top three or five of sustainable retirement income systems in the world, it is being white anted from within or locally by radical right libertarian ideologues who want to crash the lot then rebuild according to how the ‘top end of town’ or corporate sector can avoid any social responsibilities, costs or taxes at the expense of workers’ own future retirement income and interests.

  2. George agree super is good in theory and intention except its not a world of Bill and Janes in the super system, its Gordon and Susanne raping the system sideways with their SMSFs and aggressive tax strategies and succession planning and the ticket clipping finance industry that Bill and Jane have to pick up the tab for.

    • Totally agree, which is why an overhaul of the super system is much needed. Overhauling is very different to abolishing though and the two should not be confused.

  3. Jumping jack flash

    “Nonetheless, our modelling shows that Australians can look forward to a comfortable retirement with compulsory super contributions of 9.5 per cent”


    Are they including no outstanding debt, a PPOR and a 3-property IP portfolio at retirement in their model as well?
    I’m sure they’re not extrapolating and including the shocks to the super-casino that seem to be increasing in frequency and amplitude in their model either.