‘Worrying trend’: Record number of Australians raid super to fund medical treatments

More than 150,000 Australians have raided their retirement savings early to fund medical treatments over the past five years, prompting concerns the trend is inflating the cost of surgery and leaving patients in a precarious financial situation.

Weight loss surgery, dentistry and IVF are the most popular treatments accessed through the Australian Taxation Office’s compassionate release of superannuation scheme, which led to more than $730 million being drained from people’s retirement savings for medical treatment in 2022-23.

Jay Johnson and his dog, Echo. Johnson raided his superannuation to fund life-changing bariatric surgery.Credit: Janie Barrett

Nearly 40,000 applications were approved for medical treatments in 2022-23, up 51 per cent from 2018-19.

“This is robbing people of their retirement savings and it is driving up the cost of care for all Australians,” said Dr Rachel David, the chief executive of private health insurance industry peak body Private Healthcare Australia.

“We know an increasing number of people cannot afford to go to the dentist or a medical specialist. We need to address why this is the case, rather than creating another problem for the future.”

The compassionate-release scheme – which can be accessed by people experiencing a life-threatening illness or injury, acute or chronic pain, or chronic mental illness – has led to 23 complaints to the national health watchdog.

The complaints all relate to patients accessing their super to fund dental services and raise concerns about the quality of treatment and health practitioners encouraging patients to access their super.

The scheme has also spawned an industry of financial brokers who help Australians access their super early in exchange for a fee.

David, who represents the peak body for private health insurers, said a 40-year-old who withdraws $20,000 from their super for a tummy tuck will end up with a retirement savings balance reduced by more than $100,000.

She believes the ballooning numbers of people accessing their super early to pay for medical treatment is injecting additional money into the private system, which is probably driving up the cost of these procedures for everyone.

Analysis by Private Health Australia shows that over four years, there has been a 72 per cent increase in the typical in-hospital, out-of-pocket costs for policyholders undergoing a tummy tuck following significant weight loss.

They faced a median out-of-pocket cost of $7840 in 2022-23, compared with $4361 in 2018-19.

There has also been a 72 per cent increase in out-of-pocket costs for those undergoing a rhinoplasty for medical reasons, while those having breast implants removed for non-cosmetic reasons have experienced an 89 per cent increase. These fee hikes exceed the 14 per cent increase in health inflation over the past four years.

The organisation is calling on the federal government to restrict early access to super for medical treatment to terminal and life-threatening conditions.

In the short term, it would like the scheme to require patients to obtain at least two quotes for the cost of treatment and a second medical opinion. It said patients should be informed of the lost value of funds at retirement age and practitioners should not be allowed to promote early access to super.

Consumer Health Forum of Australia chief executive Dr Elizabeth Deveny would also like to see a tightening of eligibility rules. She said the cost-of-living crisis was fuelling the rise in applications to access super for medical treatments.

“It’s a worrying trend,” she said. “Do we really want to be in a place where people have to access their hard-earned super, which was going to keep them out of poverty in their old age, to go to the dentist or hospital?”

In 2018, the federal government undertook a review of the early release of super and examined whether the eligibility rules should be tightened in light of the “rapid increase” in the amount of retirement savings being released on medical grounds.

That review determined not to make changes around eligibility but to make the rules clearer and to transfer the responsibility of releasing super from the Department of Human Services to the ATO.

Under the scheme’s current rules, medical treatment must not be readily available at public hospitals, and the patient must have no other means to pay for the procedure.

Jay Johnson drained his super in 2019 to pay for weight loss surgery. He had been told there was more than a 12-month wait at the local public hospital and wanted a quicker option.

The father-of-eight from Wollongong, south of Sydney, has type 2 diabetes and had been admitted to hospital numerous times for dizzy spells and heart palpitations.

The 49-year-old was surprised by how easy it was to access the $20,000 that he needed for his bariatric surgery. Johnson’s GP referred him to a surgeon, and the two practitioners wrote that the surgery was necessary to treat a life-threatening illness: obesity. These letters were submitted to the ATO and within weeks, Johnson went under the knife at a private hospital in Sydney.

“There’s really no checks and balances for where you spend that money. I could have gone out and bought a new car with it,” he said.

Johnson has lost about 30 kilograms since his gastric sleeve surgery, which has dramatically reduced the size of his stomach so he feels full after small meals.

He said sacrificing his super was worth it.

“If I didn’t do it, I didn’t think I would be around for my grandkids,” he said. “I’m here now. I have energy and can keep up with my kids.”

However, there is growing concern about medical practitioners, such as dentists, encouraging their patients to raid their super to pay their medical bills, as well as the proliferation of financial brokers who act as an intermediary.

A spokesman for the Australian Health Practitioner Regulation Agency said the watchdog had received 23 notifications about patients using their super to fund dental services, with 12 of these relating to the quality of treatment and nine relating to patients being encouraged to access their super for it.

One of these complaints has resulted in regulatory action, 15 have been closed and the remainder are being investigated.

Dental Board of Australia chair Murray Thomas said earlier this year that he was concerned by the “sudden rise” in complaints. He warned practitioners that providing misleading information to the ATO to support a patient’s request to withdraw super could lead to disciplinary action.

Misha Schubert, chief executive of the Super Members Council, which represents some of the largest super funds, urged the government to consider banning financial brokers and review laws to safeguard patients who are accessing their super early.

“We think it would be timely and prudent for the government to review the laws governing the advertising on withdrawing super for medical treatment and consider if such material should make the potential financial implications of early withdrawal clear,” Schubert said.

“We think the government should also closely examine and consider banning the practice of third parties charging fees to complete applications for withdrawals of super for medical treatment. Patients who qualify for early release of super on compassionate grounds can usually make the application themselves, without incurring a large fee.”

An ATO spokesman said the agency did not have data showing what was driving the increase, but said patients should consider getting a second opinion or quote before raiding their super.

“Accessing superannuation early is not ‘free money’ as it will reduce the amount available in retirement and results in additional tax,” he said.

A spokeswoman for Assistant Treasurer Stephen Jones said medical practitioners were expected to follow long-standing rules governing when people can access their super early.

“The government has proposed that the objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way,” the spokeswoman said.

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