Coronavirus: Can I Withdraw My Super Early To Pay Off Debt?

Australians experiencing financial stress due to the coronavirus outbreak may soon be able to access a portion of their super. Here’s how much you may be able to draw out, and how to do it.

Fallout from the COVID-19 outbreak has hit the economy hard, resulting in many people finding themselves unsure of their financial future. To help lighten that worry, the Australian Government has announced a range of proposed changes that will make it easier for people to withdraw some of their super.

Several super funds’ websites and call centre recordings state that they have been inundated by enquiries from people wanting to know more about the scheme. However, as yet no one can access their super under this scheme. You will be able to apply for early release of your superannuation from 20 April, according to the government.

How much super can I access under the Coronavirus Economic Response Package?

The temporary measure will allow super account holders to access up to $10,000 of their money in this financial year, and a further $10,000 after 1 July, 2020 (until 30 June 2021). These funds would not be taxed after they are withdrawn, according to details listed in the Bill. However, anyone who believes that they will need both these amounts need to apply within six months of the 20 April start of the scheme.

The Australian Government has released details of what this scheme would entail:

“While superannuation helps people save for retirement, the Government recognises that for those significantly financially affected by the Coronavirus, accessing some of their superannuation today may outweigh the benefits of maintaining those savings until retirement,” the ATO fact sheet states.

“Eligible individuals will be able to apply online (from 20 April, 2020) through myGov to access up to $10,000 of their superannuation before 1 July 2020. They will also be able to access up to a further $10,000 from 1 July 2020 until 24 September 2020.”

The ATO also states that “individuals will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments”.

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Am I eligible to access my super early under the new coronavirus rules?

The ATO states that to apply for early release, “you must satisfy any one or more” of the following requirements:

  • Be unemployed
  • Be eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance
  • On or after 1 January 2020, either:
    • you were made redundant
    • your working hours were reduced by 20% or more
    • if you are a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.

The ATO’s fact sheet says that in order to be eligible, “you will need to certify that you meet the above eligibility criteria”.

Should I access my super early under the new 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.

Canstar money expert Effie 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 new 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.”

Related article: Coronavirus: What happens if I suddenly lose my job?

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.”

How do I access 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, 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:

  1. Go to myGov, access the ATO service portal
  2. 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)
  3. The ATO will issue you with a “determination” – a decision on your eligibility
  4. If you are eligible, the ATO will send that determination statement to your super fund, advising the fund to release your payment
  5. 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 to apply for an early release of my superannuation due to coronavirus hardship?

Generally speaking, setting up a myGov account can be done online. At present, there is a large volume of people accessing the myGov site and media reports state that the site has crashed a number of times. The government has requested that people avoid attending myGov offices in person, due to social distancing measures. While an exact date has not been given when this process is set to start, applications are expected to open by mid-April.

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.

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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.

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:

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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.

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Originally published by James Hurwood

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