Australia’s income support system is under mounting strain, with more than eight million people now drawing some form of assistance, as rising ill health, particularly mental health conditions, pushes record numbers out of the workforce.

New analysis by Monash University and SuperFriend for the Council of Australian Life Insurers (CALI) researchers shows about two million more Australians are now relying on income support compared with a decade ago, with demand increasing across every major support system in the country.

The data spans 11 different schemes, from employer-funded sick leave and workers’ compensation through to social security payments, superannuation and life insurance, pointing to a system struggling to keep pace with modern health pressures.

SuperFriend chief research officer Ross Iles said the lack of a clear pathway added to the pressure.

“This report shows that Australians don’t have a single, clear income support pathway. Many people need financial assistance when they are unwell or unable to work, and it can be confusing to find out where to go and how to apply,” Dr Iles said.

He said prolonged time out of work also reduced recovery chances.

“Participating in work has clear health benefits, both on physical and psychological levels for individuals and on multiple levels of society in general. However, the longer someone is out of work, the less likely they are to return to work.”

Mental health drives claims surge

Mental ill health now accounts for about 30 per cent of claims across Australia’s major income support schemes, with researchers warning it is reshaping both time out of work and long-term recovery outcomes.

Employers remain the main source of short-term support, with paid sick leave covering about 7.5 million Australians, typically for about three weeks. However, the report warns many workers exhaust this entitlement and move into longer-term support systems, where return-to-work rates drop.

Youth Allowance records the highest share of mental health-related claims at 55 per cent, followed by JobSeeker recipients with reduced work capacity at 45.7 per cent, and the Disability Support Pension at 40 per cent.

Life insurance is also heavily affected, with mental ill health accounting for 31 per cent of Total and Permanent Disability (TPD) claims and 20 per cent of income protection claims.

The report explains the system is under strain because mental health conditions rarely follow predictable recovery pathways.

Episodic symptoms require repeated reassessment, while eligibility decisions rely on subjective clinical evidence, adding complexity across all support systems.

Fragmented system leaves gaps

The report identifies 11 separate systems spanning welfare, workers’ compensation, life insurance, superannuation and veteran support.

It finds people often move between these systems through disjointed and forced transitions, leading to delays and administrative duplication.

More than half experience periods with no income at all, typically lasting seven to 15 months, often forcing reliance on savings or asset sales while unwell.

Key issues include inconsistent definitions of mental health conditions across schemes, duplicated paperwork, and poor data sharing that limits early intervention.

Insurers stepping in later

Life insurers contribute $8.3bn, about 11 per cent of total income support spending, and support about 55,000 Australians unable to work.

Income protection typically replaces up to 70 per cent of pre-tax income, while TPD payments average $395,375.

However, insurers are often engaged late in the process, with many claims lodged about three years after a person leaves work.

CALI chief executive Christine Cupitt said that timing reduced the chance of recovery.

“By the time someone turns to life insurance, they have often moved through other parts of the ecosystem. These claims tend to be more complex and longer in duration,” Ms Cupitt said.

Evidence early intervention works

The report highlights the “Your Futures” program as evidence that early support improves outcomes.

The program is an early intervention and return-to-work support initiative designed for people with psychological injuries or mental ill health who have been out of work for an extended period.

Participants with psychological injuries had been out of work for an average of 4.1 years before entering the program, yet 38 per cent returned to work within six months compared with 12 per cent of non-participants.

Policy pressure shifting demand

The report states that reforms to workers’ compensation schemes in states such as Victoria and NSW are tightening access for some mental health claims, including stress and burnout.

While this may reduce pressure on those systems, rejected claims are likely to shift into the Disability Support Pension or life insurance – systems less equipped to fund treatment and recovery.