Just in case anyone was in any doubt, it is now clear that the next time a Coalition Government is elected, early access to superannuation for a range of social purposes will become a lot more common. 

While NSW Liberal Senator Andrew Bragg has been a vocal advocate of allowing people access to super to fund a deposit for their home, Opposition leader Peter Dutton used his Budget reply speech to formally confirm his party’s support for early access to super for first home buyers and for women leaving unhappy family situations. 

The Opposition’s now clear policies to use super to help fund social issues come despite the potential passage of the objective of superannuation legislation, which is still before parliament. 

While the proposals have received strong criticism from superannuation lobby groups such as the industry super-backed Super Members Council and the Association of Super Funds of Australia, which warns it will “break the seal” of superannuation savings which are meant to be kept until retirement, their complaints will fall on deaf ears with a Coalition government. 

While there have always been grounds for members to apply to the Australian Tax Office to have early access to super on hardship and compassionate grounds, to date, it has been seen as being a high hurdle to jump with extensive documentation required. 

But if a Coalition Government is elected, super funds will need to be ready to cope with the potential liquidity aspects of much more widespread early access to super. 

Household issue

While the exact rules around the proposals will have to wait until closer to the next election, Dutton said the Coalition was committed to allowing Australians to access up to $50,000 of their super to buy their first home. 

He said a Coalition would also “extend this policy to separated women to help restart their lives.” 

While he said the money taken out of super to buy a home would need to be put back into super if the house was sold, he gave no details on the night on how this would work or how it would apply to “separated women” wanting to restart their lives. 

While some might think the objective of superannuation legislation could block proposals for early access to super, observers believe that if push comes to shove, the legislation will have no real teeth with the government of the day able to override it. 

Labor and the Coalition now have two clear policies on super – with Labor backing the Objectives of super legislation and the idea that money in super should be locked up until retirement, but seeing super funds as a potential source of capital for “national building projects” such as the energy transition and investing in social and affordable housing. 

In contrast, the Coalition, which includes some with a strong ideological position against compulsory super and the rise of the industry super funds, is increasingly seeing super as an easy short-term source of funds for social policies. 

Senator Bragg, a former staffer at the Financial Services Council who was recently appointed the shadow minister for home ownership, has been a long-term critic of compulsory super arguing that it is not working in its goal to reduce the dependence on the age pension and far more important for young people to be able to buy their first home. 

With many Australians facing problems financing housing or paying higher rents and the increased focus on domestic violence, the two Opposition policies for early access to super could prove politically popular in the next election, which has to be held by May 2025. 

The compulsory super system is based on the quid pro quo of workers getting a tax deduction on their superannuation contributions and on the earnings of their super fund, in exchange for agreeing to lock up their savings until retirement – or more specifically their preservation age (between 55 and 60 depending on their date of birth). 

Until recently it was generally accepted by both parties that the idea of preservation was part of the system, but things are changing, at least on the Conservative side of politics. 

In 2018, the Morrison Government announced a package of measures to support women, including early access to super for domestic violence victims. 

This would have allowed women to access up to $10,000 from their super during relationship breakdowns on “compassionate grounds”. 

But the policy was eventually dropped in the face of opposition from super funds as well as family violence experts who said it could see women pressured by partners to take money out of their super. 

The onset of the Covid-19 pandemic in 2020 saw the Morrison Government announce plans for people facing hardship to withdraw up to $20,000 – in two tranches of $10,000 – from their super. 

The move led to concerns that some super funds could face liquidity crises if there were large-scale withdrawals. 

This concern saw some senior superannuation industry members privately raise the possibility with the government that super funds should have access to a lender of last resort facility with the Reserve Bank, like the banks, in case of a run on their assets. 

In the end, the funds handled the issue well, as fewer members felt the need to pull their money out of super than some in the sector feared. A total of $35.8 billion was withdrawn from super by 3.4 million people (1.4 million accessing their funds on both tranches) for an average of $7,645 a member. 

Industry on edge

While the superannuation sector accepted the move as being an emergncy measure to help people get through the pandemic, it wiped out super balances for many lower-paid workers. 

While some saw it as a one-off event, because of the unprecedented nature of the Covid-19 crisis, the Morrison Government backed up again in the 2022 election with a policy that first home buyers could pull as much as $50,000 out of their super to fund their deposit. 

The super industry has been watching closely to see how much this will be carried over into the Coalition’s policy for the next election, with Senator Bragg one of the prime movers in the debate. 

Bragg chairs the Senate Economics Committee which recently handed down its interim report into existing and proposed super for housing policies. 

The report raised alarm bells for superannuation groups by raising the possibility that there be no maximum cap on the amount first-home buyers could withdraw from super to buy their home and the idea that super could also be used as collateral for first-home buyers for their deposit. 

While critics argue that allowing withdrawals from super to fund deposits for first-home buyers does nothing to increase the supply of housing and will only increase the price of housing, the policy could have political appeal with younger voters given the increasing pressure of the housing crisis. 

Bragg gave an impassioned defence of his arguments in a speech to the Sydney Institute before the budget where he concluded that “using super for a home deposit offers significantly better outcomes compared to being a lifelong renter.” 

Peter Dutton’s subsequent repeating of the proposed $50,000 cap on withdrawals in his Budget reply speech saw some super fund lobbyists heave sighs of relief that he was not going to go to the polls with an uncapped withdrawal scheme – aka that it could have been worse. 

But that said, they are still opposed to the idea. 

ASFA said it was “deeply concerned by policy proposals which paint superannuation as the bandaid to Australia’s chronic housing shortage and offer little in the way of building new homes.” 

The organisation’s chief executive, Mary Delahunty, said the policy would not make home ownership more affordable for most aspiring first-home buyers and others with low super balances. 

“ASFA considers policy measures which would see young people drain their superannuation savings for housing would further penalise the large cohort of Australians who withdrew retirement savings through the Covid-19 early release scheme,” the organisation said. 

While superannuation or retirement savings schemes differ from country to country there are some which allow for withdrawals from retirement savings for housing – including Singapore and New Zealand through its Kiwi Saver scheme. 

While the political odds still favour a Labor victory at the next election, the Coalition’s desire to tap into the superannuation honey pot as part of its election policies is now very clear. 

At a time when some super funds are having to deal with liquidity issues as an increasing cohort of members moves into the retirement phase and stapling legislation cuts down multiple accounts, the prospect of politics one day overriding the lofty ideals of the Objective of Superannuation legislation to preserve super fund savings until retirement now looking increasingly likely – if not in the short term but sometime down the track.