Backbone of the economy or worst policy since federation? What you need to know about superannuation

Australia’s $4.5 trillion nest egg has found itself at the centre of a political storm after several senior Liberal and One Nation MPs questioned the system of compulsory superannuation contributions.

Pauline Hanson and Barnaby Joyce both called for people to be given access to their funds before retirement if needed, just days after Liberal senator Andrew Bragg labelled super a policy failure that “hasn’t worked”.

“It’s one of the biggest public policy failures since federation, in the sense that it hasn’t helped the budget, and it has not really helped many people get off the pension,” he told ABC radio.

Treasurer Jim Chalmers was quick to leap on those comments, claiming the next federal election will be a referendum on super.

So, with it emerging as an unexpected political flashpoint, this is what you need to know about superannuation.

What is superannuation?

Introduced in 1992 to reduce the reliance on the taxpayer-funded age pension, compulsory superannuation forces employers to pay a proportion – currently 12 per cent – of their staff’s wages into a nominated super account.

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Aside from a few exceptions, Australians can’t access that money until they’re 65 – or 60 if they’re retired – but their retirement kitties often grow substantially thanks to investments made by super funds.

Is it a ‘policy failure’?

Australia has more than $4.5 trillion in combined superannuation; it’s the fourth-largest pot of retirement savings in the world, and forecast to reach number two by 2031, behind only the US.

Analysts at PwC have labelled super “one of the most successful compulsory savings models in the world”, while the RBA says it has “been a source of financial system stability” – although the central bank noted it does require improved resilience.

Thanks in large part to the policy, Australia has one of the lowest levels of spending on the aged pension in the developed world. 

In a 2025 study, the OECD put the figure at 3.4 per cent of GDP.

The average is 7.4 per cent, while several major European economies, including France and Italy, are well past 10 per cent.

According to Australia’s 2023 Intergenerational Report, the age pension will account for 2 per cent of GDP by 2062-63, down from 2.3 per cent, while the proportion of retirees on the pension is forecast to be 15 per cent lower.

This is despite the nation’s ageing population – by the 2060s, it’s expected there will be twice as many pension-aged Australians than in 2023.

This is not to say super doesn’t have its critics. 

According to last year’s OECD report, Australia has an above-average level of retirement-age relative poverty.

Pointing to the face more than 20 per cent of workers retire into poverty, an Australia Institute study in 2024 claimed the tax concessions built into the super system are too generous and disproportionately benefit high-income earners. 

It argued those should be scaled back to reduce the number of retirees in poverty by increasing aged pension spending.

It’s worth noting, though, that the federal government’s subsequent move to reduce some of those tax breaks was met with vehement opposition, both from the Coalition and initially from industry.

Can Australians withdraw super early?

Under current rules, yes, it is possible to access some superannuation early, although only under specific circumstances.

For example, if someone under 60 is in severe financial hardship, they can withdraw between $1000 and $10,0000 once every 12 months, but only if they a) have received welfare payments for the last 26 weeks in a row, and b) can’t make “reasonable and immediate family living expenses”.

Other grounds for early access include medical or compassionate reasons, and temporary or permanent incapacity.

What is the impact of withdrawing super early?

While a potential lifeline for people who are struggling financially, withdrawing super early can have long-term consequences, as it reduces an account holder’s investments and accompanying returns.

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Modelling from Canstar done in 2020, when the government temporarily allowed expanded early access due to the economic impact of the COVID-19 pandemic, showed that an average 30-year-old with $40,000 in superannuation would lose out on more than $83,000 by retirement by withdrawing $20,000 from their account.

In a hypothetical scenario where early super access was opened up during the cost-of-living crisis, that could have further-reaching impacts on an economy that is already struggling to keep up with demand without prices skyrocketing.

“The argument that we should be loosening super at a time when we’ve got inflation out of control and a housing market that’s in freefall, to me, would be putting fuel on the fire,” Liberal MP Ben Small said on Monday.