Business Daily Media

Early access to super doesn’t justify higher compulsory contributions

  • Written by Brendan Coates, Program Director, Household Finances, Grattan Institute

A big part of the Morrison government’s response to COVID-19 has been allowing people early access to their superannuation.

Australians who have claimed hardship have applied for A$30.7 billion[1] to date.

This has been happening in an environment in which compulsory super contributions are set to climb from 9.5% of wages to 12% over the next five years starting in July next year[2].

Many in the super industry[3] and former prime minister Paul Keating[4] argue that these scheduled increases have to go ahead in order to repair the damage done to the super balances of Australians who withdrew super.

However, new Grattan Institute modelling shows most Australians will have a comfortable retirement even if they have spent some of their super early.

Withdrawals cost less than you might think

Under the government’s scheme, people who have lost their job or had their hours cut or trading income cut by 20% or more[5] were allowed to withdraw up to $10,000 from their super between April and June, and up to another $10,000 between July and December.

More than 500,000[6] have cleared out their super accounts entirely. Treasury expects total withdrawals to reach $42 billion[7].

Retirement incomes will fall for workers who withdraw their super, but not by as much as might be thought.

The pension means test means that the government, via higher pension payments, makes up much of what’s lost.

Read more: Why we should worry less about retirement - and leave super at 9.5%[8]

The result is that a typical (median income) 35 year old who takes the full $20,000 would see their retirement balance fall by around $58,000 but would see their actual income over retirement would fall by only $24,000.

Put another way, in retirement that worker would earn 88% of their pre-retirement income instead of 89%.

Early access to super doesn’t justify higher compulsory contributions Retirees need less to live on than while working.[9] Both are well above the 70% post-tax replacement benchmark used by the Organisation for Economic Cooperation and Development and the Mercer Global Pension Index[10] to determine how much is needed in retirement. Workers on median incomes who withdraw the full $20,000 will remain well above that benchmark, even with compulsory super contributions staying where they are, at 9.5% of salary. The very highest and very lowest income earners will receive less extra pension to compensate, and will have less of a cushion. For most, 9.5% will remain enough Defaults such as compulsory contributions have to be set so they work for most of the population. While around one in five Australians have accessed their super early, four in five have not. Policy makers can only justify forcibly lowering someone’s living standards during their working life – by lifting compulsory super – if they are protecting that person from an even worse outcome in retirement. Our modelling shows workers on all but the highest incomes will retire on incomes at least 70% of their pre-retirement post-tax earnings, the so-called replacement standard. Early access to super doesn’t justify higher compulsory contributions The graph shows that many low-income workers will receive a pay rise when they retire, even if they withdraw the full $20,000 from super. Of course, some low-income Australians remain at risk of poverty in retirement – especially those who rent. They struggle even more[11] before they retire. Boosting rent assistance would do far more to help them[12] than would higher compulsory super contributions, and would do less to make them poor while working. COVID is another reason to keep super where it is Before COVID-19, there were good reasons[13] to abandon the planned increases in compulsory super; among them that it would do little to boost the retirement incomes of many Australians, that it would drain government tax revenues and widen the gender gap in retirement incomes[14]. COVID provides another reason. Previous Grattan work has shown[15] that higher super comes at the expense of future wage increases. It’s a conclusion the Reserve Bank has also reached[16]. Read more: Think superannuation comes from employers' pockets? It comes from yours[17] The retirement income review[18] at present with the government is likely to come to the same conclusion[19]. Increasing compulsory super contributions in the midst of a deep recession would slow the pace of recovery. And that would be bad news for all Australians, regardless of how much we end up with in super.


  1. ^ A$30.7 billion (
  2. ^ starting in July next year (
  3. ^ super industry (
  4. ^ Paul Keating (
  5. ^ 20% or more (
  6. ^ 500,000 (
  7. ^ $42 billion (
  8. ^ Why we should worry less about retirement - and leave super at 9.5% (
  9. ^ Retirees need less to live on than while working. (
  10. ^ Mercer Global Pension Index (
  11. ^ even more (
  12. ^ far more to help them (
  13. ^ good reasons (
  14. ^ widen the gender gap in retirement incomes (
  15. ^ shown (
  16. ^ also reached (
  17. ^ Think superannuation comes from employers' pockets? It comes from yours (
  18. ^ retirement income review (
  19. ^ same conclusion (

Authors: Brendan Coates, Program Director, Household Finances, Grattan Institute

Read more

Business Reports


Pristine Backdrops, Best-In-Class Offerings and Post-Event Holiday Deals Capturing Interstate and International Interest Recently crowned the tourism capital of Australia, the Sunshine State is drawing thousands of interstate...

Businesses fail the moment they stop asking why

Many business owners don’t realise it, but in business it doesn’t just matter what you do, it matters why you do it. To run a successful company - one better placed to mitigate challenges, grow post-pandemic and buil...

Companies have a simple and legal way to help their workers living in anti-abortion states – expanding paid time off

As the last abortion clinic in Mississippi closes, workers in the state may get some support from their employers. AP Photo/Rogelio V. SolisEmployers looking for ways to support their workers seeking abortions in states where it&r...

Six reasons why it pays to automate billing in your business

Harnessing the power of technology to improve the efficiency and accuracy of your billing process can supercharge productivity and profitability. Is your enterprise plagued by billing errors, or struggling to get invoices out...

How Sport4 is changing the way you watch sports

Forget about pay-per-view or checking the score at half time – Sport4 is changing the way Australians watch sports.  Fresh from their national debut at the Judo Australia National Championships, Sport4’s automated sports...

Advantages of Vacation Rental Management Software

The first vacation rental management software systems were launched in the early 1980s. At the time, they were majorly used by hotel owners to manage their properties online. The main functions included hotel reservations and ...

Content & Technology Connecting Global Audiences

More Information - Less Opinion