There are a few situations where Australians could apply to withdraw some of their superannuation before retirement. These include (click on the links below to go to that section in this article):
- COVID-19 Early Release of Super: If you are suffering financial hardship to the ongoing coronavirus pandemic.
- Severe Financial Hardship (not related to the COVID-19 crisis): Eligibility requirements include receiving eligible government income support payments continuously for 26 weeks, and being unable to meet “reasonable and immediate family living expenses”.
- Compassionate Grounds: Conditions of early super access could include to cover situations in which you’re faced with certain expenses which you have no other way of paying, such as medical bills or funeral costs of a partner or family member.
Also covered in this article:
- COVID-19 early release: How much super can I claim?
- Am I eligible to access my super early under the new coronavirus rules?
- Should I claim my super early?
- How long does it take to pay out?
- How do you go about claiming?
- How do I set up a myGov account?
- Could I use my super to pay off debt?
- Can I access my super early if I can’t pay my mortgage?
COVID-19 early release of super
Australians experiencing financial stress due to the coronavirus outbreak can apply to access a portion of their super. Fallout from the COVID-19 outbreak has hit the economy hard, resulting in many people finding themselves unsure of their financial future.
In response, the Australian Government launched a scheme which allows eligible account holders who are in financial distress to apply to withdraw funds from their super. This scheme is open to Australian and New Zealand citizens and permanent residents. Temporary residents were able to apply for the first round of the scheme, but are unable to apply in the second round.
Australian Treasurer Josh Frydenberg announced on July 23 that the deadline for claiming the tax-free early release of super due to COVID-19 hardship would be extended until 31 December, 2020.
Canstar money expert Effie Zahos said new survey data from Canstar found 60% of Australians who had taken money out from their super or planned to before the cut-off date intended to top it back up when they get back on their feet financially.
“While most are looking to make up the shortfall so that they’re not worse off in retirement, the data found 27% had no intention of topping up their superannuation and a further 12% are undecided as to whether they will or won’t,” Ms Zahos said.
“A 30-year-old who took out $10,000 from their super would have to contribute an average of $90 every month (before tax) until they retire at 67, in order to ensure they’re not losing out in retirement. And there’s also the impact that early release is having on those members who haven’t accessed their super.
“There’s nothing shameful about accessing your super to manage your finances but it should be your last resort. Be sure to take advantage of all other forms of support first before you use your super to bail yourself out.”
How much super can I claim under the Coronavirus Economic Response Package?
The first round of the scheme, enabling applicants to access $10,000, closed on 30 June, 2020. Data from the Australian Taxation Office (ATO) showed more than $27 billion worth of withdrawals had been approved (as of 5 July, 2020) in that first round.
A second round opened on 1 July, 2020, allowing eligible applicants to apply to withdraw up to $10,000. Applications close on 31 December, 2020.
The funds would not be taxed after they are withdrawn, according to ATO, and “will not affect Centrelink or Veterans’ Affairs payments”.
“You will not need to pay tax on amounts released under COVID-19 early release of super and will not need to include these amounts in your tax return,” the ATO advises. “Amounts released under other compassionate grounds must be included.”
Am I eligible to access my super early under the new coronavirus rules?
The ATO states that for Australian and New Zealand permanent residents and citizens to apply for early release, you must need it to help you “to deal with the adverse economic effects of COVID-19”. As well as this, one of the following requirements must apply:
- you are unemployed
- you are eligible to receive one of the following: JobSeeker Payment, Youth Allowance for job seekers (unless you are undertaking full-time study or are a new apprentice), Parenting Payment (which includes the single and partnered payments), Special Benefit, Farm Household Allowance
- on or after 1 January 2020 either you were made redundant, your working hours were reduced by 20% or more (including to zero), or you were a sole trader and your business was suspended or there was a reduction in turnover of 20% or more (partners in a partnership are not eligible unless the partner satisfies any other of the eligibility).
The ATO has warned that people needed to be in financial difficulty due to COVID-19 in order to apply for access to super, and that it was “important that you assess your eligibility accurately and honestly”.
“If we find that you have applied for COVID-19 early release of super when you do not qualify, or mainly for the purpose of obtaining a tax benefit (for example as part of a recontribution strategy involving the claiming of a personal super contribution deduction), we will consider taking further action,” the ATO states.
The ATO said applicants need to keep records that demonstrate eligibility, such as:
- letters, emails or rosters from your employer
- bank statements
- business cash flow and turnover records
- website or other public notice confirming your business closed
- documents confirming eligibility for relevant government allowances or benefits (listed above)
- separation certificate.
If you apply and you’re not eligible at the time of submitting your application, and are not able to demonstrate your eligibility, the ATO said the amount of money paid to you under the scheme will be considered as part of your income, and you will pay tax on the released amount.
If the ATO finds that you have also provided false or misleading information to meet the eligibility criteria for this scheme you could face penalties of more than $12,000 for each false and misleading statement.
Compare super funds
If you’re comparing superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.
Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group disclosed above the table.
To view the past performance of all super funds, rated by Canstar, use our comparison tool.
Should I claim my super early under the COVID-19 hardship measures?
Making a decision to take some of your super balance out of your account during this crisis is a decision many people may face in the near future.
Ms Zahos said accessing your super early could potentially reduce the amount of funds you have available for your retirement. She said it could be a wise idea to seek professional advice before making any decisions.
“Super balances have dropped considerably in the past few months, so by withdrawing this money now, you could be realising those losses,” Ms Zahos said.
“If you have fallen on financial hardship due to this crisis, this measure allowing people to access their super is just one of several ways you can get help. There are also a range of government assistance packages available.
“Stay calm, have a look at your options and compare this measure to the other help that is available.
“Work out what accessing your super early could end up costing you in the long run. Because we will get to the other side of this crisis, and you want to make sure that whatever decision you make now doesn’t cause any financial issues in the long term.”
Industry Super Australia (ISA) Chief Executive Bernie Dean said his organisation’s analysis showed the potential impact on retirement balances if super is accessed early:
- A 20-year-old who accesses the full $20,000 available under the scheme could lose more than $120,000 from their retirement balance.
- A 30-year-old who accesses $20,000 from super now could lose about $100,000 when they hit retirement
- A 40-year-old could lose more than $63,000 from their retirement balance.
“Members should tread carefully and only think about cracking open their super after they’ve taken up the extra cash support on offer from the government – super should be the last resort given the impact it can have on your retirement nest egg,” Mr Dean said.
“Members need to know that taking your super now is like selling a house at the bottom of the market – you’ll lose money you would probably have clawed back over time.”
Coronavirus super release: How long does it take?
After applying for early release of super under the COVID-19 hardship measures, fund members can expect to receive the money within about nine days – “but it can be longer” – according to APRA. The scheme is currently experiencing high demand due to the opening of the second round of applications, APRA states, which will lengthen wait times.
This is how the process works:
- A fund members applies via the ATO website
- APRA states that it takes the ATO “up to four business days” to process an application.
- The ATO then passes confirmed application to the fund.
- The fund processes the application before paying the money into their fund member’s nominated bank account. This stage takes up to five business days, or longer, according to APRA.
How do I claim my superannuation early, due to coronavirus hardship?
The Australian Government states that applications for COVID-19 early release super amounts must be made online via myGov.com.au, the government’s services portal.
To do this, you will need to set up a myGov account and link government services to that account, such as the Australian Taxation Office, where your super details are also recorded, and Centrelink, which is handling other parts of the stimulus package such as relief payments.
The ATO says that the full application process for superannuation fund members (when the scheme comes into effect on 20 April) is as follows:
- Go to myGov, access the ATO service portal
- Apply for the COVID-19 early release super payment, ensuring that you can “certify that you meet the above eligibility criteria”, which typically includes providing payslips or other documents as evidence (further detail is expected to be released about this)
- The ATO will issue you with a “determination” – a decision on your eligibility
- If you are eligible, the ATO will send that determination statement to your super fund, advising the fund to release your payment
- The fund will then make the payment to you “without you needing to apply to them directly”
The ATO also states that “to ensure you receive your payment as soon as possible, you should contact your fund to check that they have your correct details, including your current bank account details and proof of identity documents”.
“Separate arrangements will apply if you are a member of a self-managed superannuation fund (SMSF),” the ATO added, noting it would publish guidelines on its website for these members.
“If you are a member of a self-managed superannuation fund (SMSF) who is eligible, you can apply through myGov from mid-April,” the ATO website states. “We will then issue you with a determination advising of your eligibility to release an amount. When your SMSF receives the determination from you, they will be authorised to make the payment.”
How do I set up a myGov account?
Generally speaking, setting up a myGov account can be done online. The government has requested that people avoid attending myGov offices in person, due to social distancing measures.
When you access the myGov landing page, you will need to have handy your email address, personal information such as your date of birth and Tax File Number. If you are already a Centrelink customer, you may also need your Customer Reference Number. It could be a good idea to have identity documents, such as a driver’s licence and Medicare card, with you as well.
What were the super early-access rules before the coronavirus outbreak? Could I use my super to pay off debt?
Aside from the special temporary coronavirus access rules, there are a few other reasons why you may be permitted to access your super prior to reaching your preservation age. Two of these are related to debt: financial hardship and compassionate grounds. Either of these scenarios may allow a person to access their superannuation early for the purposes of paying debt in certain circumstances. Keep in mind that while these conditions of release are outlined in the superannuation law, not all superannuation funds necessarily allow their trustees to receive a payment in the same circumstances, so it is a good idea to check with your own fund.
The circumstances under which you may be able to access your super early due to financial hardship are rather different to the circumstances under which you may be granted early access on compassionate grounds (as well as being different to the new COVID-19 financial hardship access rules). Furthermore, what you are allowed (or required) to use the super money towards once you’ve accessed it varies depending on why you were granted early access.
Here’s an overview of these two grounds for early access to super, their eligibility requirements, and for what purposes you may be allowed early access.
It’s important to note, for both grounds, the advice from the ATO is that early release of super is for unpaid costs only – it says you will not be permitted to access your super early if the expenses in question have already been paid. You should also be aware that the ATO advises you may end up paying tax on the money you withdraw under these conditions of release.
Early access to superannuation due to severe financial hardship (not related to the COVID-19 crisis)
According to the ATO, you may be permitted to access up to $10,000 of your superannuation benefit on the grounds of severe financial hardship. In order to be eligible for early access on these grounds, you will need to have received eligible government income support payments continuously for 26 weeks and be unable to meet “reasonable and immediate family living expenses”. To apply for early access due to severe financial hardship, contact your super fund.
You can only make one early withdrawal due to severe financial hardship in any 12-month period, and if granted access you will be able to withdraw between $1,000 and $10,000.
“Reasonable and immediate family living expenses” refers to any expense(s) which are a necessity for your family’s day-to-day life, which could include:
- Housing or accommodation costs
- Food expenses
- Essential travel costs
- Any other essential living costs
So, depending on the type of debt and your personal circumstances, you may be able to access your super early due to severe financial hardship in order to pay debt(s). It could be a good idea to check how your super fund is performing, so that if you do ever need to take money out of your super account it has the best chance of bouncing back in time before you retire, although bear in mind that past performance is not a reliable indicator of future performance.
Early access to superannuation on compassionate grounds
The other debt-related reason you may be able to access your super early is if the ATO approves you for early access on compassionate grounds. This refers to situations in which you’re faced with certain expenses which you have no other way of paying, such as medical bills or funeral costs of a partner or family member.
This can potentially be a more stringent process than applying for early access due to severe financial hardship, because it must be approved by the ATO rather than your super fund. You must first apply through the ATO, and if they approve your application they will provide your super fund with a letter of approval authorising early access to your benefit.
There is no set minimum or limit on how much of your super benefit you may be allowed to access early on compassionate grounds, but the ATO states you will only be permitted to access “what you reasonably need” in order to pay the expense in question. According to the ATO, some of the expenses which may qualify you for early access to super on compassionate grounds include:
- Medical treatment expenses for you or a dependant
- Making a payment on a loan to prevent you from losing your house
- Meeting expenses arising from modifying your home or vehicle for the special needs of you or a dependant because of a severe disability
- Death, funeral, or burial expenses
Of those four types of expenses, only mortgage payments constitute debt, so let’s have a look at the rules and regulations which govern early access to super in order to meet a mortgage payment.
Can I access my super early if I can’t pay my mortgage?
The ATO states that if the lender you have your mortgage with is threatening to sell your home due to you being unable to make your repayments, or your council is threatening to sell your home due to rates arrears, you may be able to access your super early on compassionate grounds. It says you’ll only be permitted to do so if:
- The home is your primary residence
- You’re legally responsible for the mortgage or rates payments
- You have no other way of paying the mortgage or rates arrears, such as accessing savings or the sale of assets
According to the ATO, you will generally be ineligible for an early release of superannuation for mortgage assistance if you are:
- not currently in arrears on your mortgage or council rates, even if you expect to have difficulty making future repayments
- in arrears on your mortgage or council rates, but your lender or council is not threatening to repossess or sell your home
The ATO further advises that you can’t use this condition of release to access funds to repay rental arrears.
How much can I access?
As mentioned, when accessing your super early on compassionate grounds you’re only permitted to access as much as is necessary to pay the relevant expenses. In the case of a mortgage, the maximum amount you can generally access in any one 12-month period is:
- three months of repayments
- 12 months of interest on the balance of the loan
Additionally, the ATO will usually only approve the release of the amount required by the lender or council, which it advises may be less than the maximum amount specified above.
What if I owe more than I have in super?
If your super benefit is not large enough to make your outstanding mortgage repayments, the ATO advises that in order to access your super early on compassionate grounds you’ll need to either:
- Reduce the amount you owe your lender
- Negotiate with your lender to reach an agreement in which they accept your available super benefit in exchange for not selling your home (a letter from your lender confirming this agreement must then be provided to the ATO)
Generally speaking, regulations around early access to super are designed to ensure it’s absolutely a last resort for anyone struggling with debt. Consider seeking advice from a qualified financial adviser or counsellor before applying to access your super early. To help you decide whether your super fund is providing you with value, you can compare super funds with Canstar.
Originally published by James Hurwood
As with all our content, Canstar’s Coronavirus coverage will always be free for our readers.