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 (now closed): For those suffering financial hardship due to the coronavirus pandemic.
- Severe Financial Hardship (not necessarily 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.
COVID-19 early release of super
Australians experiencing financial stress due to the coronavirus outbreak were able to apply to access a portion of their super up until 31 December 2020. This scheme is now closed and the Australian Taxation Office (ATO) says that payments for applications submitted by 31 December will be made throughout January 2021.
The scheme, introduced by the Australian Government, was open to Australian and New Zealand citizens and permanent residents and allowed those eligible to access up to $20,000 from their super across two financial years.
The ATO introduced strict criteria on those applying to access their super savings under the scheme, amid accusations that some people were using it when they did not need the funds – for example, using it solely to gain a tax benefit.
The ATO said it would investigate and potentially penalise anyone found to be have withdrawn super without being eligible or who provided false or misleading statements with their application. It also warned people to watch out for scams relating to the scheme, or people offering to assist with an application in return for a fee.
→Related article: Superannuation scams and tips on avoiding them
As at 20 December 2020, a total of $35.9 billion had been paid out to people from their superannuation, with the average payment amount for a single application being $7,643, according to the Australian Prudential Regulation Authority (APRA).
While the program has now closed, the economic fallout from the coronavirus pandemic continues for many Australians. If you are experiencing financial hardship, it may be beneficial to speak with a financial counsellor (a free service) to discuss your options.
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.
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 scheme which has now closed, 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 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 newer COVID-19 financial hardship access rules). Furthermore, what you are allowed (or required) to use the super money for 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 necessarily 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 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 it approves your application, it 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.