Why Australians can't freely access their $4.4 trillion in super savings

Australians are sitting on about $4.4 trillion in superannuation savings for retirement. But there are ongoing debates about whether they should be allowed to access some of that money early to help with costs of living.

And making an early withdrawal can have a big potential impact on your future retirement savings — especially if you are in your 20s or 30s.

So what are the rules around early withdrawal, and who do you have to convince if you're making a claim?

Strict rules on early access

Superannuation savings are intended to help people cover their living expenses when they have left the workforce and are in retirement.

Taxes on super contributions are lower than income tax rates, and withdrawals after retirement are also at discounted tax rates.

Those low tax rates come with strings attached: rules that prevent people from using their superannuation savings for other reasons than income in retirement.

For the most part, superannuation savings in Australia are not readily withdrawn until at least age 60. People can withdraw super from age 60 if they have stopped working, or from age 65 even if they have not stopped working.

The Australian Taxation Office is very clear that there are limited circumstances in which you can access your superannuation before retirement:

• on a range of compassionate grounds (such as for medical treatments, funeral expenses and preventing a forced sale of your home)
• a terminal medical condition
• severe financial hardship
• temporary or permanent incapacity to work.

But the rules are strict. And who you need to apply to will depend on your reasons for seeking to withdraw money.

For instance, if you apply on compassionate grounds, you need to apply via the tax office and meet all of its criteria.

But in other circumstances, such as severe financial hardship, you need to apply directly through your super fund. Even if you meet all the criteria — which includes having received government income support payments for at least half a year — it's up to the fund trustees' discretion whether to say yes. The most you can withdraw for severe financial hardship is $10,000 in one year.

People often wish they could access their super for help with house deposits or home loan repayments. First home buyers may be eligible for the First Home Super Saver scheme. But in general, just needing help for mortgage repayments is not going to be sufficient grounds to access your super savings.

Beware scams and misleading ads

The tax office has had to issue warnings about misleading ads and social media claims, encouraging people to try to withdraw super on compassionate grounds, such as medical or dental expenses that are not absolutely necessary on health grounds.

The tax office says to be particularly careful with anyone suggesting super can be accessed to pay for cosmetic or elective procedures, as these treatments usually aren’t eligible.

If someone offers to help you apply to your super fund to take money out, that’s a red flag. It could even be a scam.

You can report ads or social media accounts making misleading statements about early access to super, either online or by calling the tax office’s tip-off hotline: 1800 060 062.

Separately, unlicensed, real-time "cold calls" about superannuation will soon be banned, under consumer protection law changes announced by Assistant Treasurer Daniel Mulino on Wednesday.

These rules will aim to prevent scammers or salespeople encouraging people to move their super, as happened with the First Guardian and Shield funds which later collapsed, affecting almost 12,000 people and around $1 billion in retirement savings.

Consider the long-term savings hit

There are lessons from the COVID pandemic about why withdrawal rules are so strict.

In 2020, the Coalition government's COVID-19 Early Release Scheme allowed participants in financial hardship easy access to up to $20,000 from their super because many Australians were doing it tough.

One of us (Susan) was involved in a 2023 study that combined data from one of Australia's largest super funds, Cbus, with a survey of more than 3,000 of its members to examine why people withdrew some of their super savings.

A majority of people reported they did need the money immediately. But around one quarter (26.6 per cent) said they were anticipating future needs.

Almost half (48.5 per cent) said they thought about the decision for a week or less, while many also withdrew as much as they could. When asked about the impact on their long-term retirement savings, only 17% correctly estimated how large an impact it would have.

By the end of 2020, 3.5 million Australians had made at least one successful application to withdraw from their super accounts, totalling about $38 billion.

A 2024 Super Members Council analysis of the COVID Early Release Super scheme found that a person aged 30 who withdrew the full $20,000 could be expected to retire with about $93,600 less in superannuation.

Protecting retirement funds

There will always be arguments for freeing up access to super a little.

But it’s important to keep the primary objective of the superannuation system firmly in sight.

The system exists to help finance the dignified retirement of working Australians, together with other sources of support such as the Age Pension, in an equitable and sustainable way.

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