Cost of living pressures drive super lump sums

More Australians have been accessing superannuation lump sum payments in what appears to be a reflection of tougher economic circumstances and particularly higher interest rates.

While successive Governments have sought to dissuade members from accessing lump sums, the latest data from the Australian Prudential Regulation Authority (APRA) has revealed that lump sum payments in the December driving up total benefit payments.

The APRA data showed that benefit payments rose 21.5% to total $28.4 billion for the quarter which brought total benefit payments for 2023 to $111.1 billion.

“This increase is mostly attributable to a 26.3% increase in lump sum payments. Total benefit payments for the quarter comprised of lump sum benefit payments of $15.5 billion and pension payments of $13.0 billion,” the APRA analysis said.

Importantly, the APRA analysis said net contribution flows derived from contributions plus net benefit transfers less benefits payments were $12.7 billion in the quarter meaning that net contribution flows for 2023 declined by 9.9% to $57.7 billion which APRA said was driven by the increase in benefit payments.

The decline in net contribution flows tended to cloud the significant growth in employer contributions driven by the increase in the superannuation guarantee to 11% and a 3% increase in the number of people employed.

The increase in lump sums needs to be seen against the background of the surge which occurred as a result of the former Coalition Government’s COVID-19 hardship early release regime and then the steady rise in interest rates.

Commenting on the data, Deloitte partner, Andrew Boal pointed to his own firm’s analysis confirming that low balance members were the most likely to opt to take a lump sum, not least to pay down mortgages and other forms of debt.

He said that the bottom line was that the majority of superannuation fund members still had comparatively low balances (less than $345,000) and were more likely to take a lump sum.

Only around 41% of superannuation fund members had balances sufficient to justify taking a pension.

Drilling down on the APRA data, lump sums were more likely to be accessed by members of industry and retail funds.

Looking at the December quarter data more generally, total Australian superannuation assets increased by 3.8% to $3.7 trillion with APRA staying the increase was driven by strong growth in APRA-regulated funds, which increased by $0.1 trillion and strong returns from financial markets.