Inside plan to overhaul super

The federal government wants to tighten the lock on superannuation funds to make it more difficult for Australians to access their savings early, ensuring they have a comfortable retirement.

According to Treasury, 78 per cent of Australians have money in their superannuation account. The pool has grown from around $148 billion in 1992 to $3.3 trillion today – or 139.6 per cent of GDP – and is projected to grow to around 244 per cent of GDP by 2061.

Treasurer Jim Chalmers wants to make Australia’s super system – already one of the strongest in the world – even stronger after the Morrison government allowed Australians $36 billion worth of super to be taken out during the Covid-19 pandemic.

For the broad benefits of super to be fully realised, and for super to best support the high living standards of Australians, Dr Chalmers says there needs to be a clear understanding of the objective of super.

While the super industry appears to welcome the proposed objective, the Coalition and some crossbenchers say otherwise which could make the change difficult.

What does today’s superannuation scheme look like?

Compulsory superannuation as we know it today – the Superannuation Guarantee – was introduced in 1992.

At the time, employers had to contribute just three per cent of an employee’s earnings. By mid-2025, employers will have to contribute at least 12 per cent of an employee’s income into their designated fund. Individuals can also contribute to their super.

In general, access to super is not allowed until the age of 65 or if you’ve reached the preservation age which depends on the year you were born.

There are limited other circumstances where early access can be applied for, including on compassionate grounds.

For the past 30 years, policy makers, government, regulators, super funds and Australians alike have had an understanding of what super is, but there has never been a legislated objective.

Dr Chalmers said that had allowed the Morrison government to “raid the superannuation system for their own purposes – with devastating impacts on Australians’ savings”.

He used a speech on Monday to say the former government had taken an attitude towards the super industry that was “sometimes counter-productive, and often costly”.

“Without consultation and little consideration, Australians were forced to choose between better incomes in retirement or paying their bills … and $36bn of Australian retirement savings were lost.”

What is being proposed by Labor?

Dr Chalmers has now released a consultation paper, with the ultimate aim of legislating an objective for super.

The proposed objective is: “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.

Put simply, this would mean a legislated, mutually agreed upon understanding of what superannuation is and what it should and should not be used for.

It seeks to shift public perception from superannuation as a kind of nest egg of savings that should be available when you need it to what it was designed to be – a liveable, comfortable income for retirement years.

Dr Chalmers said legislating an objective for super would give confidence to the super industry and peace of mind to workers that savings will be safeguarded to deliver income in retirement.

In his speech, Dr Chalmers said the objective legislation would make sure that future changes to the super system are “compatible with its very objective”.

“Doing that requires that we embed super’s purpose into law,” he said.

Ultimately, it won’t stop future governments from allowing early access to super, but it will mean that any proposed policy or legislation is made through the lens of the legislated objective.

What are the opposition and crossbenchers saying?

The Coalition and part of the crossbench have already slammed the move.

Nationals MP Barnaby Joyce said Australians had the right to access their own money before retirement if they wanted, or needed to.

“Superannuation is a great program, but I don’t think you should rule out letting people have access to their own money,” he told Sunrise.

Tasmanian senator Jacqui Lambie said tightening rules around super wasn’t “black and white”, and suggested Australians should have access to 10 to 15 per cent of their fund.

“Had I not been able to access my super in full, I can assure you … I would have lost my house … and my sons would not have had a roof over their heads,” she told Sky News.

“I don’t think tightening of those super rules right now, if we’re going into a recession, is going to be very helpful whatsoever.

“It’s not as black and white as Jim Chalmers would like to think it is.”

What does the super industry suggest?

HESTA – one of the largest funds that has more than one million members, said the objective of super was a great move.

“The consultation period is an opportunity to come together and shape a stronger super system now and for generations to come,” chief executive Debby Blakey said.

Aware Super chief executive Deanne Stewart said she too supported the proposal.

“It certainly gives the industry a really good sense of what the purpose of superannuation should be, which remarkably isn’t there 30 years since the superannuation guarantee was brought in,” she said.

IndustrySuper Funds chief executive Bernie Dean said the proposal reflected what working people already understood as super’s purpose.

“It should help avoid another disaster of allowing people to tap into super early for any reason, which hurts everyone,” he said.

The Australian Institute of Superannuation Trustees has also welcomed the proposal, with chief executive Eva Scheerlinck saying the legislation of an objective was “long overdue”.

“The definition recognises the centrality of preservation of superannuation benefits until retirement, equity in the system and the important role superannuation plays in providing a dignified retirement,” she said.

“We’ve seen the damage that the Covid-19 early release scheme did to the retirement savings of thousands of fund members.”

What happens next?

The consultation paper has called for stakeholder feedback by March 31. From there, Dr Chalmers and cabinet will consider the anticipated wide-ranging views and adapt an objective.

After that will come legislation, which could happen as soon as this year.

Whether or not it goes to an inquiry will be a decision of the senate.