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 Analysis from the Australian Taxation Office (ATO) found $39.2 billion was withdrawn from the system over the two years.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