More Australians are using their superannuation for medical procedures. But that might put their financial health at risk

A record number of Australians are accessing their superannuation early on compassionate grounds, mainly to fund their own medical procedures – or those of a family member.

Some 150,000 Australians have used the scheme in the last five years. Nearly 40,000 people had applications approved in 2022-23, compared to just under 30,000 in 2018-19 – an increase of 47%.

Some people think this flexible use of funds is a good way to ensure people can fund their own medical needs. But more transparency and better oversight is needed.

What are compassionate grounds?

Since July 2018, the Australian Tax Office has administered the early release of superannuation – meaning before retirement – under certain circumstances, including compassionate grounds.

Compassionate grounds for you or your dependant (such as child or spouse) are:

• medical treatment or transport
• modifying your home or vehicle to accommodate special needs for a severe disability
• palliative care for a terminal illness
• death, funeral or burial expenses
• preventing foreclosure or forced sale of your home.

The medical treatment must be for a life-threatening illness or injury, or to alleviate acute or chronic pain, or acute or chronic mental illness.

The treatment cannot be “readily available” through the public system. Cosmetic procedures are excluded.

You also have to prove you cannot afford to pay part or all of the expenses without accessing your super, for example, by spending your savings, selling assets or getting a loan.

People who can access other funding for the expense, such as via the National Disability Insurance Scheme, are ineligible.

Why are people using this scheme more?

The ATO has not explained what is driving the surge. General cost-of-living pressures may play a role. People may have fewer savings to draw on for medical procedures.

But the treatments most commonly being accessed using superannuation – fertility treatments, weight loss surgeries and dental care – point to other systemic issues.

There have long been issues with IVF and dental care not being readily available or funded in the public health system.

Weight loss surgeries (including bariatric surgery) can help combat potentially life-threatening conditions such as heart disease. Recent research suggests there has been an overall drop in the number of Australians having bariatric surgeries since 2016. But of those, 95% are performed through the private system.

While early access to super can provide individuals access to critical treatment, there are issues with how compassionate grounds are defined and regulated.

Lack of clarity

As my co-author and I have shown, the vague wording of the Superannuation Industry regulations leaves them worryingly open to interpretation.

For example, the meaning of “mental disturbance” is not defined.

You may not meet the criteria of having an acute or life-threatening illness, or acute or chronic pain. But if you can show a certain condition causes you acute mental disturbance, you may qualify to release your superannuation early.

People accessing their superannuation for IVF use this criterion, for example, by arguing they need to access funds to continue treatment and alleviate the acute mental distress caused by ongoing infertility issues.

Two registered medical practitioners are each required to submit a report demonstrating the treatment is needed, and one must be a specialist in the field in which the treatment is required. However, the regulations do not specify clearly that the specialist should have relevant qualifications.

In the IVF example, this means the specialist opinion can be provided by a fertility doctor rather than a mental health expert – and that person may stand to profit if they later also provide treatment.

A closed-loop system

Conflict of interest is another major issue.

There is nothing in the regulations to stop a medical practitioner – such as a dentist – being involved in all steps and then financially benefiting. They could encourage a patient to access superannuation for a treatment, write the specialist report and then also receive payment for the treatment.

Some clinics promote accessing superannuation as an option to pay for expensive treatments.

This raises important questions about the independence of the process, as well as professional ethics.

Medical practitioners making recommendations for early release of superannuation should be doing so on genuinely compassionate grounds. But the potential for exploitation remains an ethical concern, when a practitioner can financially benefit from recommending early access to nest egg funds.

Transparency around potential conflicts of interest are impossible to ensure without proper oversight.

What is needed?

1. Mandatory financial counselling

The ATO has warned accessing super early is not “free money”, with a spokesperson urging people to get financial advice. But the law should go a step further and make this compulsory. That way people making decisions during an emotionally charged moment can understand any future implications.

2. Tightening of the criteria

Greater clarity in the legislation – such as defining “mental disturbance” – would help prevent loopholes being exploited.

3. Better oversight

Less health-care industry involvement would promote greater transparency and independence. An independent body of medical practitioners could assess applications rather than practitioners who could financially benefit if applications are approved. This would help alleviate perceived and actual conflicts of interest.

Accessing superannuation early may be the only option for some people to start a family or access other life-changing medical care. But they should be able to make this decision in a fully informed way, safeguarded from exploitation and aware of the implications for their future.