Australia's Renowned Superannuation System Leaves Some Feeling Left Behind

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Is super fairly providing for all Australians in retirement? With legislative changes to superannuation imminent, Insight asks if our super system is working for us. Watch Insight episode Super Future Tuesday 1 July at 8.30PM on SBS or live on SBS On Demand.

She said that instead of increasing her super during her highest earning years in her 40s and early 50s, she took time out of the full-time workforce to be John’s carer.

During this 14-year period, Belinda did not contribute to her super.

“We had to actually raid it a couple of times and take money [out] when things were really bad and tough,” she told Insight.

a middle aged woman with short hair and glasses close-mouth smiles with her head touching with a middle aged man in a beanie

Belinda took over a decade out of the full-time workforce to care for her late husband John when he was diagnosed with blood cancer. Source: Supplied

Belinda is in her fifties and wonders if Australia’s super system was designed for people like her.

While she feels proud of her decision to care for her husband, Belinda admitted that she looks back and thinks those “were a lot of really good years where I could have been building my super”.

As a median, women retire with around 25 per cent less in super than men, according to the Association of Superannuation Funds of Australia (ASFA).

“So many of us — particularly women — we end up coming out of these long-term caring roles … and when my time comes, there’s nothing,” Belinda said.

A graph showing superannuation balances by age and gender in Australia.

Source: SBS

Navigating the super system

In Australia, employers must pay a percentage of your earnings (currently a minimum of 11.5 per cent) into your super account. Your super fund invests this money until you retire.

You can access your super when you retire and reach your ‘preservation age’ — between 55 and 60, depending on when you were born.

You can also access your super at 65, regardless of whether or not you have retired. There are also some circumstances in which you can access your super early.

According to the ASFA, Australia has approximately $4.1 trillion in superannuation assets and is on track to become the second-largest pool of capital in the world.

But this provides little consolation for people like Donna, 59, who says she hasn’t saved enough in superannuation for a comfortable retirement and is struggling to navigate the system.

“There’s a lot of us out there that really don’t understand what a balanced fund or a fixed asset is — or all this jargon,” she said.

She has been married and divorced. She raised two children and now spends more than half of her income on rent.

“I [think] back to my 20s when I was just going out, having fun and not even wondering or worrying what super is.

“Over the last few years, I’m really concerned now … I’ve missed the boat.”

A superannuation tax increase

Paul has been planning for his retirement since he was 19 years old.

A conversation with his coworker inspired him to start making extra voluntary contributions to grow his super balance.

As a high-income earner, he believes he benefits from the tax advantages of the super system.

“Someone on a high-income tax bracket gets the greatest tax break, and that’s probably the reverse of what you would like to achieve if you want to help middle- or lower-income earners,” he said.

With Labor’s new proposed super tax, Australians like Paul with high super balances could soon start to pay more tax.

Currently, pre-retirement earnings in super are taxed at a flat rate of 15 per cent. Labor has proposed an extra 15 per cent tax on super assets above the $3 million threshold.

The new tax is expected to apply to 80,000 people (less than 0.5 per cent of the population), according to a 2023 Treasury portfolio media release.

Treasurer Jim Chalmers says the proposal is “about making sure that the superannuation system is fairer”.

“My job, and the government’s job, is to make it all add up. Sometimes that involves decisions which not everybody likes,” he said during a press conference in June.

The move has been opposed by the Coalition, while the Greens have called for this tax threshold to be lowered to $2 million — which would impact more super balances.

A graphic on the proposed super tax is set to affect those with a super balance of over $3 million

There are 80,000 people with super balances of $3 million and over, according to a 2023 Treasury portfolio media release. Source: SBS

Is scrapping super the answer?

The Treasury said in 2022 that superannuation tax concessions amount to “about $50 billion a year”.

Economist Cameron Murray believes the best path forward is for Australia to scrap government-mandated super altogether.

He says that if it were scrapped, “we’d be able to close a bunch of tax breaks that are skewed to the top end”, and young people and families would have more of their income to spend “when they’re young and poor and they need it”.

Murray started studying superannuation after he had children and told Insight: “The super system is quite interesting because we think it’s there helping all of our retirements and giving us all a fair chance. But it actually amplifies all of the inequalities of working life into those retirement years.

“I think the important point as a policy question [is] it’s skewed to the people who would never be on the age pension and would be independently wealthy at retirement age anyway.”

a man with curly hair and in a blue shirt taking a selfie in front of the water at Barangaroo

Economist Cameron Murray believes we should scrap the government-mandated super system. Source: Supplied

Independent financial adviser Andy Darroch doesn’t believe it’s that simple. He believes that the Australian super system is “the envy of the developed world” and should definitely not be scrapped.

“Australia is the only country on earth that you can have a nurse and a diesel fitter get to age 65 with close to $1 million in super,” he said.

He said if more Australians had early access to super, “you’d probably sell a lot more jet skis, and you’d want to invest in a tattoo removal company … people don’t save for retirement”.

Are Australians superannuation savers?

In 2020, Damian accessed his super savings early for dental work. He spent $6,000 on crowns and anticipates he will need to use more money from his super to fix his teeth in the near future.  

“I should have got braces when I was a kid, but my parents couldn’t afford it. So, I’ve got problems now that are coming from not having braces.” 

Damian believes more Australians should be able to access their retirement savings early.   

“I reckon, if you’ve got the money when you’re younger, use it to have fun. 

“As my brother said, [have] the adventure before dementia.”  

a close up photo of an older man with a bald head and white beard and wearing glasses

Damian accessed his super to help fix his teeth. Source: Supplied

While the Labor government aims to make the super system “fairer”, Australians like Donna and Belinda feel like they’ve missed out.

Both women had long periods where contributing to super wasn’t a priority or it simply wasn’t possible.

“I’m really concerned [about super] now because I’m coming into that age where I’m going to need it soon … and it really does scare me,” said Donna.

“I’m having to basically look after myself with no help … I can’t afford to get sick … I’m stuck.”

She recently attended a seminar hosted by her super fund and has talked to experts over the phone in hopes of learning more. But these conversations left her feeling more confused.

“I’m not going to sit here and say ‘poor little me’, because I’ve left it too late and now, I’m trying to do something about it.

“But I am still not getting the information — even though I’m trying.”

Like Donna, Belinda feels like she’s fallen through the super gap.

“I don’t think there’s an equal superannuation system at all. When I was 16 and we were being sold super, it was different to what I’m seeing today,” Belinda said.

Belinda says that relying on the pension doesn’t seem like a good option for her either.

“I don’t want to struggle through my old age on this little bit of money the government gives you and … just get by and exist.”