Can I Withdraw My Super Early To Pay Off Debt?

There are a few ways in which you can potentially access your super early, and in some situations debt may be one of them. Here’s how the rules work.

Of the several  reasons why you may be permitted to access your super prior to reaching your preservation age, two of them 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 allow their trustees to receive a payment, 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. 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 Australian Taxation Office (ATO) is that early release of super is for unpaid costs only – 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

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 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.

The following table contains a snapshot of the superannuation funds rated by Canstar based on someone aged 40-49 with a balance between $55k and $100k. This table has been sorted by three-year performance (highest to lowest). Before committing to a particular super fund, check upfront with the provider and read the PDS to confirm the fund’s criteria for releasing funds early on severe financial hardship grounds, and whether it meets your needs overall.  Bear in mind that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise.

Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.

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 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 just 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 is reasonably needed 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. You may 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 mortgagee 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, which they advise 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)

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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