We all understand Superannuation is designed as a safe haven for retirement savings. But if life throws us a curveball, is there any way we can access our super early to help get us out of trouble? Let’s take a look…
It can be very frustrating to look at a rather healthy superannuation balance when money is tight and think “If only I could use that money to help get me out of this!” Unfortunately, in most circumstances there is simply no way you can touch that money in your super account. However, there are some situations when you may be able to access super money before retirement.
Generally, these situations include things like permanent disability or terminal illness. But you can also access super savings in some cases of compassionate grounds or financial hardship, so long as some rather complex and specific rules are met.
You may be granted access to some of your super savings before retirement under ‘compassionate grounds’ but only if a specific set of criteria set out in superannuation legislation is met. In the past few years some changes have been made in an attempt to expand the opportunities for release.
The eligibility criteria include meeting unpaid expenses for:
- Medical treatment and medical transport for you or a dependant.
- Palliative care for you or a dependant.
- Making a payment on a loan or council rates to avoid losing your home.
- Modifications to your home or car or the purchase of disability aids to cater for a severe disability for you or a dependant.
- To pay for a dependant’s funeral (does not cover costs of the wake).
Early release will not be granted for any medical condition. It must be a life-threatening illness or injury or acute/chronic pain or mental illness. The expense may have been incurred for either treatment/or transport associated with the illness.
If you are repaying a mortgage and are behind on payments which has put you at risk of foreclosure, you may be able to apply for the release of funds to cover three months of mortgage repayments within a 12-month period. You may also be able to apply for enough money to cover the arrears on your council rates.
In both cases, release may only apply if required to stop foreclosure and your name must be included on the loan or ownership.
Financial hardship grounds
Financial hardship is only possible if you are:
- Unable to meet reasonable living expenses, and
- Are receiving Centrelink or Veterans’ Affairs income support, and
- Have been receiving income support payments for at least 26 weeks.
If you meet these conditions you will be limited to withdrawing only $10,000 within a 12-month period unless you are at least preservation age and have received the income support payments for at least 39 weeks, when you can access your full superannuation balance.
What’s the catch?
While these options may provide you with much needed, urgent financial relief in extremely difficult life situations, undertaking such options is far from ideal and should only be considered as a last resort.
This is because withdrawing money from your super early will obviously reduce your super account balance but it will also attract tax on withdrawal amounts. Depending on your age, the tax rate will vary between 17 or 22 per cent (including Medicare).
If you are applying for release on the grounds of your own illness, you may instead wish to consider applying directly to the trustee of your superannuation for release on the grounds of terminal illness. This would allow you to make a tax-free withdrawal.
The taxable component of any amount released before your preservation age will also count as assessable income. You won’t be liable for marginal rates of tax as the flat rates of 17 or 22 per cent apply, but it may affect your eligibility for family tax benefits or child support.
Submitting an application
If the release of your superannuation is approved, you will be allowed to withdraw only the amount required to pay for the approved expenses and only if the expense is unpaid. If you borrowed or used a credit card to pay the expenses, you won’t be eligible to apply for early release.
Applications for release are submitted to the Australian Taxation Office unless you are a member of an exempt public sector scheme, in which case you would need to apply directly to the fund’s trustee.
You must be an Australian citizen or permanent resident to be eligible to submit an application and will need to provide full details of the expense including invoices showing the amount outstanding. You must also demonstrate that you cannot afford to pay the expenses without accessing your superannuation.
We hope none of our Wealth Depot clients would ever have to face a situation where you need to access your superannuation early. However, if you ever find yourself in need of advice relating to this issue, please contact our office to have a conversation. Some things are unavoidable, but the Wealth Depot team can help you review your available options, assess the implications of withdrawal and if needed help you get your finances back on track after withdrawal.