Most of us don’t think much about our Superannuation, until we get closer to retirement. If you’re experiencing hardship and are considering applying for early access to your Super, this article will help you understand your options and what you need to do next.
As you’re probably already aware, Superannuation is specifically designed to help prepare you financially for retirement, so there are specific rules which govern how and when Super can be accessed. The Australian Government stipulates that unless you qualify for specific criteria which we will cover, Super cannot be accessed until you reach your preservation age.
Generally, once you’ve reached your preservation age and have fully retired from work, you should have no issue accessing your Superannuation. If you pass away before accessing your Super, it will be paid to your beneficiary. Nevertheless, if you find yourself in difficult circumstances, requiring you to access your Super early, there are a few ways you may be able to qualify.
Criteria for Early Access to Super
Under certain circumstances and hardships, you may be eligible to access your Super early. These are the categories under which you may be experiencing severe financial hardship, making you eligible to apply to early access to your Superannuation:
- Severe Financial Hardship
- Compassionate Grounds
- Terminal Medical Condition
- Temporary Incapacity
- Permanent Incapacity
- First Home Super Saver Scheme
Compassionate Grounds
You may be able to get early access to your Super for the purpose of covering one or more of the following expenses:
- Medical treatment or transport for you or a dependant
- Palliative care for you or a dependant
- A payment towards your home loan or council rates if you’re at risk of losing your home
- Expenses associated with the death, funeral or burial of your dependant
When you access your Super early under Compassionate Grounds, it will be paid and taxed as a normal Super lump sum. As such, the tax rate will vary, depending on your age and the components of the Super lump sum. Your Superannuation fund will deduct tax from your account automatically. Refer to the ATO Super lump sum tax table for more information.
If you’re a member of an exempt public sector Super scheme (EPSSS), apply directly to your Super scheme for early access to your Superannuation.
Severe Financial Hardship
To be eligible to access your Superannuation early due to Severe Financial Hardship, you’ll need to meet the following criteria:
- You have received an eligible Government support payments continuously for 26 weeks and
- You are not able to meet reasonable and immediate family living expenses
Any funds you access early will be taxed as a Super lump sum. If you’re aged under 60, you’ll generally be taxed at 17%-22%. Anyone older than 60 will not be taxed.
You can withdraw a minimum amount of $1000 up to $10 000. If your balance is less than $1000, you may be able to withdraw the balance remaining after tax. You can make only one withdrawal per 12-month period.
Once you’ve reached your preservation age (plus 39 weeks) and are fully retired, there will be no cashing restrictions.
Should your Super provider require evidence of this, contact Services Australia and request a letter of confirmation, outlining that you have received eligible government income support payments continuously for upwards of 26 weeks.
If you’re older than your preservation age but have no retired, there are different rules around applying to access your Super early.
You must:
- Be working full time or part time, looking for work, or studying
- Have reached your preservation age plus 39 weeks
- Have been receiving an income support payment for at least 39 weeks after reaching your preservation age
Terminal Medical Condition
If you’ve been diagnosed with a Terminal Medical Condition, you may be eligible to access your Super early. To be classified as being terminally ill, two doctors must confirm that your injury or illness is likely to result in your death within 24 months.
If you are in this situation, contact your Super fund to begin the process of applying to access your Super early. Your fund must pay your Super as a lump sum. This will be tax free if withdrawn within 24 months of certification.
If your fund doesn’t allow early access to your Super under these conditions, you have the option of moving your Super to a different fund. There are no limits on your withdrawals however your Super provider may have rules around these payments.
Once your claim has been approved, any benefits accrued up to that point become unrestricted non-preserved benefits, which means that any additional benefits you may accrue in the 24-month period following certification are also unrestricted non-preserved benefits and can be accessed as a tax-free lump sum payment if withdrawn within 24 months of certification.
After the certification period ends, the remaining balance can be accessed but may not be tax-free. Any benefits accrued after the certification period will not be covered by the original ‘Terminal Medical Condition’ condition of release and will need to be discussed with your provider.
Upon receiving your tax-free Super lump sum payment, your provider doesn’t necessarily have to provide a payment summary and you won’t be required to include this amount on your tax return.
Temporary Incapacity
If you are temporarily unable to work at full capacity due to a mental or physical condition, you may be eligible to apply to access your Super early. People often access insurance benefits linked to their Super account under these circumstances.
Once your application has been approved, you’ll receive the Super in regular payments, during the period you’re unable to work. These payments will be taxed as a Super income stream. When you discuss your options with your Super fund, be sure to ask them about any possible insurance implications which may occur.
If your Super fund does not approve your application, consider making an application under the condition of Severe Financial Hardship.
Permanent Incapacity
If you’re applying to access your Super early due to Permanent Incapacity, you must provide your fund with proof of permanent physical or mental medical condition which is likely to prevent you from ever working at full capacity in your specific field. Discuss your options with your Super fund, to make sure you’re making the best decision in these circumstances.
You may be able to receive your payments as a lump sum or as regular payments as part of an income stream. Any early Super withdrawal due to Permanent Incapacity will be taxed differently. If you’d like to receive concessional tax treatment, you’ll need to have at least two medical practitioners certify your Permanent Incapacity to work.
It’s important that you discuss this with your Super fund, to ensure you take the best course of action.
Your Super payment will be taxed according to how much of your Super is:
- Tax-free component
- Taxed element (taxable component that your Super fund has paid taxed on)
- Untaxed element (taxable component that your Super fund hasn’t paid tax on)
If you haven’t reached your preservation age and are receiving a disability benefit as an income stream, you’ll receive tax offsets which will reduce the tax rate on the taxed element of your taxable component by 15%. If you are at or older than your preservation age – or if you’ve received a lump sum – your disability benefit will be taxed differently.
First Home Super Saver Scheme
If you’re purchasing your first home, you can apply under the First Home Super Saver Scheme (FHSSS) to release voluntary before-tax (concessional) and voluntary after-tax (non-concessional) contributions you’ve made to your Super find since 1 July 2017.
To be eligible for this, you must:
- Be 18 years old or older
- Have never owned property of any kind in Australia
- Have never requested the Commissioner to issue an FHSSS release authority
As part of the FHSSS, you can apply to receive a maximum of $15 000 of your voluntary contributions, and up to $30 000 of contributions. You’ll also receive an amount of earning related to those contributions.
How Do I Apply?
The application process depends on the grounds for your claim to access Superannuation:
- Severe Financial Hardship, Terminal Medical Condition or Temporary/Permanent Incapacity: apply directly via your Super fund
- Compassionate Grounds: apply online via the ATO
Once you’ve determined under which grounds you will apply to access your Super early, you’ll need to:
- Check if you’re eligible
- Gather required documentation, according to the ATO or your Super fund’s requirements
- Submit your application
- The ATO/your Super fund will then confirm your eligibility with Services Australia. They will also validate your identity and begin assessing your application
- The ATO/your Super fund will then notify you of the outcome
- Funds will be deposited into your nominated account
The application assessment process generally takes at least 3-5 working days from receiving your application. The process will take longer if the ATO or your Super fund need to discuss the claim further with you or if they need to request additional information or supporting evidence.
Speed up the process by ensuring you have all the required documentation on hand. You’ll need the following documents to support your claim:
Do you have Super in other funds?
If your Super is spread across multiple funds, you may decide to combine them before submitting your application. This is usually a simple process which can be completed online.
Does your Super account include insurance cover?
If so, and you’d like to maintain your Super insurance cover, you’ll need to make sure the balance is high enough to cover future premiums. Be sure to make at least one eligible contribution a year to maintain your insurance cover.
Always be aware of illegal schemes.
Some promoters claim that they’re able to offer early access to your Super. They do this by transferring your Super into a SMSF (self-managed Super fund). This process is illegal and incurs heavy penalties. Learn more about this on the ATO website.
Your Centrelink payments may be impacted.
When you access your Super early, this may reduce your government support payments. Services Australia can give you more information on this.
Are there other sources of financial support which you can access?
Deciding to access your Super early is a big decision and can have future financial implications. Before submitting your application, consider contacting the following organisations to request help:
National Debt Helpline: free financial counselling
Crisis and Special Help: Australian Government support information and assistance
Accessing Super Early: FAQs
Living expenses include overdue mortgage or housing payments, outstanding bills, car repairs and medical expenses.
While you are entitled to access your Super early to pay off debts, it’s important to understand that payments made under Severe Financial Hardship provision are only to be used to pay for living expenses (as outlined above), or to cover overdue bills or debt repayments. This does not cover any future repayments or debt clearance.
The preservation age is set by the Australian Government, as the age at which you’re eligible to access your Superannuation, once you’ve permanently retired. Preservation ages vary according to a person’s date of birth. For example, if you were born after 30 June 1964, your preservation age is 60. The preservation age of anyone born between 1 July 1960 and 30 June 1964 varies from 55-59. If you’re unsure of your preservation age, contact us anytime to discuss.
The main difference between applying to access your Super early on the grounds of Severe Financial Hardship and Compassionate Grounds is that those applying under Compassionate Grounds don’t need to have been receiving Government support payments to be eligible. To apply under Compassionate Grounds, you only need to prove your inability to make payment on one of the following:
- Your own or one of your dependant’s medical treatments
- Transport for a life-threatening, chronic pain inducing or mental illness
- Mortgage or council rates
- Your own or a dependant’s palliative care
- Death, funeral or burial expenses of a dependant
Your provider will make a tax-free Super lump sum payment to your account, if your Super complies with your provider’s terms.
- The payment will be tax-free under the following circumstances:
- You have a Terminal Medical Condition at the time of payment
- You have a Terminal Medical Condition within 90 days of receiving the payment
If the balance of your Super fund is less than $200 you may be able to access your Super early if your employment is terminated or if you’ve found a ‘lost Super’ account with a balance of less than $200.
Early Super payments are tax-free when the Super account balance is less than $200.
If you need help with your application, or any advice during what is probably a difficult time for you, please feel free to contact me or book an appointment. I’m here to help you in any way I can.
