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Breaking it down: the problem with disrupting the super model

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  Published: 17 Aug 2020

In a time of crisis, we’re all making important decisions about our super. But can we afford the long-term impacts? We break it down by the numbers.

If you withdraw $10,000 now, the impact on your retirement could be significant:

A 25-year-old taking out $10,000 now could have $49,000 less in retirement, a 35-year-old could lose up to $34,000 and a 45-year-old up to $23,000.

The government initially estimated 1.65 million Australians would take out a total of $29bn from super. Australia-wide, about 1 in 5 workers have accessed their super early. Already, 2.5 million Australians have taken out at least $29bn and it appears likely that demand will far surpass forecasts -the final figure may be more than $42bn.

Industry funds have paid:

 $10.3 billion from super; 96% within 5 business days of request

Less super means working longer

Back in 2014, increases to the superannuation guarantee (compulsory super contributions) were delayed until 2021. That means the planned increase from 9.5% to 12% won’t be finalised until 2025.

The delay has already cost the average Australian $4,300 in lost super. Now, the government is talking about scrapping the increase altogether.

If the proposal to freeze the super guarantee succeeds, the impact on average Australians will be severe -especially for those who have withdrawn the $20,000 available during Covid-19.

If the super contributions freeze goes ahead, on average, a 30-year-old man who has withdrawn $20,000 from his super during Covid-19 will need to work an extra 6 ½ years to make up the difference, or have $180,000 less in retirement at age 67.

The impact on women is even greater. A 30-year-old woman on average earnings faces an extra eight years of work, or will have $150,000 less at age 67.

Draining super affects the whole economy

Industry super fund members already collectively own more than $76bn in Australian infrastructure, property, and other physical assets. These investments create jobs and drive productivity and growth.

Now, industry super funds are set to spend big on projects across Australia as part of a three-year investment pipeline.

  • $19.5 billion investment
  • 200,000+ new jobs

The projects include:

  • Commercial construction
  • Redevelopments
  • Public infrastructure upgrades
  • Improved energy efficiency

Profits generated by these investments help deliver strong returns to members, like you
  • $100 invested in unlisted assets 15 years ago is now worth $510
  • That same $100 invested in international shared would be worth $351 now.

Industry super funds hold a major stake in Australia’s economic life. They invest in Australian listed companies -holding 10% of the ASX.

They’re active in debt markets, have significant infrastructure and property holdings and invest in the wider Australian financial system.

The super system needs a strong Australian economy to deliver for members, and the economy needs a strong super system to support its recovery.

Investment in super is the best way to stabilise the Australian economy after Covid-19

Industry super funds outperform retail funds -on average, by 1.8 per cent a year over the past 23 years.That grows the federal budget bottom line through increased tax revenue, lower debt interest payments and reduced age-related payments.

  • $6.6 billion: capital expenditure
  • $6.5 billion: upstream spending
  • x2.4 short-term multiplier

Industry super funds contribute budget savings through infrastructure growth, higher tax revenue, greater private wealth, lower pension payouts and more.

A stronger economy (0.4% of Australia’s GDP) -> Higher taxation ($2.5bn to commonwealth revenue) -> lower government interest payments ($220m).

This adds up to $2.7bn in annual budget savings and generates private wealth

We can’t afford to mess with super

Early withdrawals and a superannuation freeze will make everyone’s retirement harder. To deliver strong returns to members, super needs to be able to make diverse investments.

To improve the assets we all use ... stimulate economic growth ... and grow your nest egg.

If it can’t, the Australian economy will suffer, with fewer jobs created, less direct budget benefit and worsening infrastructure. In a time of crisis, Australia can’t afford that risk.

*Data source: Industry SuperFunds, Super in the Economy Report 2020.

Assumptions on the early release of super by Industry Super Australia. Consider your own objectives, financial situation and needs before making a decision about superannuation because they are not taken into account in this information. You should consider the Product Disclosure Statement available from individual funds before making an investment decision. Originally produced content by Guardian Labs Australia to a brief agreed with and paid for by IndustrySuperFund. The original content can be accessed here:

*The above material, whilst correct at the time of publication may include references or statements which are no longer current.

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