You’re probably hearing a lot lately about proposals to allow people to dip into their super to buy a house.
And before that, it was to get through COVID, and some people have even used it to pay for medical procedures.
On the surface, this looks like a good idea. If you’ve got a parcel of cash with your name on it, just sitting there, then shouldn’t it be used for, well … useful stuff?
Currently, you can access your super before your retirement age on very limited grounds, these include having a terminal illness, extreme financial distress, if you are temporarily unable to work due to ill health, permanent incapacity or have a balance of less than $200. If that sounds simple, it’s not really, and comes with a whole lot of conditions, which you can read more about here.
You can also use some of your super to help buy your first home. The government program is called the First Home Super Save Scheme (FHSSS).
Should you access your super?
So you can access your super early, but should you? Or should you have to?
Well, yes and no. Of course, you should access your super if you are facing a terminal illness or are in extreme financial distress, but what about ‘elective’ surgery or for a home deposit?
Perhaps the most controversial use of early super is for medical care. Australia likes to pretend it has ‘universal’ healthcare, but in reality governments of both persuasions have gradually been eroding the system. Even if you do have private health cover, there are considerable costs involved, and if your situation becomes too severe, often you will be transferred to a public hospital anyway. And Medicare does not cover dental care, where as anyone knows even a relatively simple issue can run into the thousands of dollars
An increasing number of people are accessing their super to pay for care and skip waiting lists. According to Australian Tax Office figures, in the 2022-23 financial year, 57,700 people were allowed early access to their super on medical grounds. That’s up from 39,100 in the 2018-19 period. Dentistry, IVF and weight management were among the most popular treatments.
A bit shameful
This is less than ideal, and a bit shameful for our health system.
Advocacy group COTA said these numbers were a cause for concern.
“We need to address the fact that people aren’t able to afford things like dental care rather than forcing people to dig into their superannuation and creating another problem down the track,” COTA chief executive Patricia Sparrow said.
“When you take the compounding impact into consideration, a $20,000 withdrawal at 40 years of age could mean around $100,000 less at retirement. That’s a huge impact that needs to be properly considered.
“It’s shocking to think that so many Australians are in a situation where they must choose between accessing essential medical care and sacrificing a dignified retirement.”
But for many people, weighing up relying on an increasingly creaky healthcare system and having their health fixed in a timely manner, there is no question that their health would win.
What about housing
What about using your super to pay for a house or deposit? Well, for a start, the FHSSS only allows you to withdraw $15,000 of your voluntary contributions from any one financial year, up to a total of $50,000 across multiple years, plus associated earnings.
Even if you have voluntary contributions to draw from, a quick scan of local real estate listings will show that if you are relying on the FHSSS for a deposit you will be living in a highrise carpark.
Economists are also split about the long-term complications of allowing people to access their super for housing.
Economist Cameron Murray told SBS news that giving Australians early access to their super funds is a “reasonable” demand.
“The best time to spend your own money is now, right? No-one’s getting any younger,” he said.
“We’ve made the problem worse by tying up more than 10 per cent of people’s income when they’re young and poor to have more income when they’re old and rich.”
He has a point, people need housing now, and their retirement could be decades off.
More expensive
However, economist Saul Eslake has some strong opinions on that.
“Using super for housing would make homes more expensive, hinder the home ownership aspirations of young Australians, reduce retirement incomes and lead to a significant long-term cost to the Budget,” he said in a report.
In the report, commissioned by the Super Members Council, Mr Eslake charts how a long list of demand-side Australian housing policies over several decades have simply made homes more expensive. He warns that super for a house would be the worst of all.
“We have 60 years of history, which unambiguously tells us, anything that allows Australians to pay more for housing than they otherwise could leads to more expensive housing and not more homeowners,” he said.
“Of all the demand-fuelling housing policies, the Coalition’s super for housing policy would be the biggest – it can only lead to higher prices.
“If super for housing was introduced, it would be one of the worst public policy decisions in the last six decades.”
So what’s the answer? The problem is, as the super system matures and there is more and more money sloshing around in the kitty, people are going to want to get at it, and who can blame them?
Balancing act
The government has a delicate balancing act to perform. On one hand, people are going to need emergency money for whatever reason, and health and housing are basic human requirements, so worrying about retirement can be a long way off when you are facing a crisis on those two issues.
On the other hand, if people are allowed to regularly run down their superannuation, that puts an unfair burden on the taxpayers who will have to fund their retirement.
Does the government have that balancing act right? Depends on who you ask, but going a long way to solving this problem would be properly funding healthcare and solving the housing crisis.
Should people be allowed to dip into their super? Why not share your thoughts in the comments section below?
