Taking Out Your Superannuation Early
Under normal circumstances in Australia, you're not permitted to access your superannuation before you turn 55 years old. There are certain situations, though, in which you can gain access to these funds.
Normally you're unable to access the funds in your superannuation until you reach preservation age, which is set by law and enter permanent retirement. This minimum age is referred to as preservation age because the money in your super fund is 'preserved' until you reach this age. If you were born before July 1960, the preservation age is 55 and then grows incrementally to 60 for people born after June 1964. If you've reached the age of 65, you can access a portion of your super even if you haven't permanently retired via a transition to retirement pension. You are able to withdraw up to 10% of the account balance of your super fund every financial year, though you are not permitted to withdraw lump sums. Despite this, there are certain situations in which you can request to get some of the money in your superannuation fund before you reach retirement age in order to help you meet your financial obligations, namely having your super released due to severe financial hardship or on compassionate grounds. Note that you might have to pay tax on any funds released from your superannuation early.
Gaining access to your superannuation early
Before you get early access to your super, it's important to remember that at best this is a short-term reaction to help you with current financial problems which can lead to significant losses in the long-term. You should only really consider accessing your super early after you've tried everything else to resolve your financial problems, including requesting independent financial advice. You really need to consider whether solving your problems in the short-term is worth losing the returns you could have earned and reducing the amount that will be available to you when you retire. Of course, if you really have no other way of meeting your obligations, then you might need to go ahead but make sure you've considered all other options. For example, if you dip into your super early to pay the arrears on a home loan because you can't afford to pay it off, you're only putting off the inevitable. You might sort out your problems for the time being, but you will still end up having to sell your home if you can't afford it. All you'll end up doing is using money which is normally protected against creditors to pay off a debt where the money isn't protected and where you not only still lose your home, but also part of your superannuation and the returns that money could have earned. In this example getting access to your super early will see you end up with less money available for your retirement or any other financial hardship issues.
Note that while the Department of Human Services (DHS) is in charge of approving applications for the early release of your super based on compassionate grounds, it's still up to the superannuation fund to release the funds. In other words, if your super fund doesn't permit early access, then it doesn't matter what the Department of Human Services says, you will still be unable to access the funds.
What are the grounds for the early release of my super?
Many superannuation funds will allow you to access a lump sum from the amount you've accumulated in your super account once every year. However, your application has to be founded on one of the following:
- Certain compassionate grounds, like to prevent the foreclosure of your home, paying medical bills, disability expenses or covering funeral costs
- Serious financial hardship, including to cover reasonable immediate living expenses for your family, such as loan repayments, rent arrears, car repairs, medical costs and overdue bills
- In the event of you being temporarily or permanently incapacitated
- If you are diagnosed with a terminal disease or injury.
In some cases, you may be able to get early access to your super if you are moving out of Australia for good or if your super account has less than $200 in it.
If you want early access to your super for reasons of financial hardship, you have to file the application directly with your superannuation fund. However, any application to release funds early based on compassionate grounds must be filed with the Department of Human Services.
What are considered compassionate grounds?
There are certain situations that are considered to be compassionate grounds and allow you to file an application for early access to your super. These are as follows:
- For medical treatment and/or transportation for you or a dependent
- To help pay your mortgage
- To make changes to your home and/or motor-vehicle
- For palliative care for you or a dependent
- To cover funeral expenses for a dependent
Of course, there are certain eligibility conditions that have to be met for your application to be approved.
Medical treatment and/or transportation
You may qualify for the early release of funds from your superannuation on compassionate grounds to cover certain medical and/or transportation costs for yourself or a person who is dependent upon you. These expenses are as follows:
- Medical or dental treatment
- Transportation to get said treatment
Early Access Conditions
Note that you can't access your super for all medical treatments. The treatment you need must be for an illness or injury that is life-threatening, to relieve acute or chronic physical pain or to alleviate a serious or chronic mental issue. Furthermore, the treatment in question must be difficult to access via the public health system and the expense must not be fully covered by any private health insurance or workers' compensation you or your dependent have access to.
When submitting your application, you should make sure you have all the supporting documents available to smooth the process and avoid any delays. A qualified medical or dental professional will have to fill out a report for medical practitioners and/or specialists, which is available on the website of the Department for Human Services. The alternative is to submit a letter from your medical or dental specialist. This letter must provide all the information the report requires and be printed on the specialist's letterhead. It has to be signed and dated and must not be older than six months from the date you submit the application. The letter must also show exactly what the qualifications of the specialist are. This information must be in English or submitted as a certified translation into English. You will also have to obtain a quote or submit outstanding invoices from the various service providers, in other words your medical or dental specialist and/or the company providing transportation services as proof of the amounts you have to pay.
If you are in danger of having your home sold from under you by your mortgage lender, you might be eligible to receive early access to your superannuation. Note that this does not apply for rent or covering repayments on a mortgage if:
- You will find it hard to pay in the future but are not behind on your payments
- You are behind on your payments but not so far behind that the lender has come to the decision to sell the property
- A friend or your business is responsible for making the payments
- It was secured using a second property you own or an investment property.
To apply for early release, you have to meet all of the following conditions:
- You're behind on your payments and are having a hard time making any payments at all
- The lender wants to sell the property because you are so far behind on payments
- The mortgage documents are in your name, whether you are the sole owner or a joint-owner of the property
- The property which is under threat of being sold by the lender is your residence and not a second property or an investment property.
The amount you can get depends on how much you have in your super account and the bills or debts you want to pay off. For mortgage payments, the DHS can allow the release of a sum to cover three months of mortgage payments plus an extra 12 months of interest payments on the outstanding balance of your mortgage. Again, to make sure your application goes through without any problems and there are no delays, you need to provide all the relevant supporting documentation. For mortgage assistance you need to submit a written notice or legal statement from the bank or financial institution. This notice should include the following information:
- Details demonstrating that the property will be foreclosed on and sold or taken possession of if the outstanding amounts are not paid within a certain period
- The amount owing in order for the lender to stop the procedure of selling or taking possession of your residence
- The address of the property that is under threat of being foreclosed on
- The value of three months of repayments on your home loan
- The value of 12 months of interest charges on the remaining balance of the loan
- The lender's name, BSB and the loan account number.
The notice should be printed on the lender's letterhead and should be no older than 30 days.
Changes to your home and motor vehicle
There are certain situations in which you can apply for early access to your super to make changes to your home and/or motor vehicle. This doesn't refer to you getting access to your super to renovate your kitchen or reupholster your car seats, but rather to afford special requirements that you or a person dependent on you might have due to a serious disability. You can apply to pay for changes to your home and vehicle as well as to cover the expense of purchasing disability aids needed to accommodate a serious disability. Note that to be eligible you need to also make sure that besides needing said modifications and disability aids, you also must be unable to cover these expenses in any way other than by using the money in your superannuation fund. The supporting documents you will need to submit include:
- A letter from a registered medical professional who provided treatment for the medical condition in question stating that the said condition can be considered a severe disability. It'll also need to state that changes need to be made to your residence and/or vehicle to accommodate special needs resulting from said disability and details regarding what changes need to be made.
- Quotes, unpaid invoices and/or receipts from the companies that performed the relevant services, showing the amounts that need to be paid as well as any amounts you can claim from private health insurance. Note that these documents must not be older than 30 days.
If you want to submit an application for the early release of your superannuation to cover the costs of palliative care, you will have to get in touch with your superannuation fund to arrange for the release of the funds.
Note: To be eligible, you or your dependent needs to suffer from a terminal illness, require help in covering the costs of palliative care and be unable to cover said costs in any other way.
You will have to submit documentation as proof to ensure no delays occur during the processing of your application. This means you'll need to submit a letter from a registered medical professional whose care you or your dependent have been under. This must state that the medical issue is terminal and the palliative care is required. You also have to provide quotes, invoices or receipts or your application will not be processed.
Funeral expenses for a dependent
You can apply for the early release of your super to pay for the costs of a dependent's funeral. However, you can't apply to cover the costs of your own funeral. To be eligible you need to show proof that you need help covering these costs and have no other option available to you other than to request early access to your super. You will also have to provide various supporting documents including:
- Proof of the death of your dependent, such as a death certificate
- Quotes or invoices to show the expenses involved
- If the person was not your child or spouse, proof that the person who died was dependent on you, such as bank statements showing financial dependency or proof of payment of a Commonwealth Carer's benefit.
What is considered severe financial hardship?
If you want to access your superannuation early because you are having financial difficulties, you need to meet certain conditions that the government considers to be indicative of 'severe financial hardship'. Generally speaking, you must have received Commonwealth Government income support, such as unemployment benefits, for a minimum of 26 consecutive weeks. The trustee of your superannuation fund will also need to consider you unable to meet your immediate family expenses and obligations. Note that any payment you receive can only be used to cover every day living costs and cannot exceed one payment of $10,000 in a 12-month period. If you've reached preservation age, you could get access to your entire super as long as you've been on government income support for at least 39 weeks.
A non-resident departing Australia for good
If you're not a resident of Australia, you have the right to request the early release of your super if you leave the country for good. You are considered to be a non-resident if you've come into the country on a temporary resident visa, which means that if you are an Australian or New Zealand citizen, a permanent resident or have a retirement visa, you are not eligible for early access to your super fund, even if you do leave the country permanently.
You have the right to access your super early if you suffer a permanent disability that incapacitates you. However, the trustee of the super fund holding your money must be satisfied that you're unlikely to be able to work again in your field due to the severity of your condition.
There is a chance your super fund might offer automatic income protection insurance or you might be able to submit an application for such a policy via your superannuation fund. This cover can then be used to ensure you receive a regular income if you suffer from a lengthy sickness or become disabled. This type of insurance policy usually offers benefits for up to two years.
If you pass away, the superannuation fund will pay death benefits to your estate, spouse or other persons who are dependent on you.
Lifetime pension or annuity
You can access your superannuation fund at any time as long as you opt to take it as a non-commutable lifetime pension or annuity. These represent a pension that you will receive for the entire duration of your life and that cannot be accessed as a lump sum.
The pros and cons of early access to your super
As with anything, there are benefits as well as drawbacks to accessing your super early. The key is to decide what is more important to you. By accessing your super early, you will be able to use your own money to reduce debt instead of taking out other loans and digging an even deeper hole for yourself. Lenders and creditors will stop hounding you for payment and threatening to repossess your home. You'll be less stressed and better able to come up with a plan and work towards reducing any other debts you might have. Furthermore, if you feel that your current situation is much more pressing than any situation you might face in the future when you retire, you will feel more in control and will be better able to handle the problem once you reduce some of your debts. However, there are some serious consequences to accessing your super fund early that you need to take into account before making the final decision. First of all, any money that you get before retirement is taxed at a higher rate. Taking out money from your super fund means that you will have less money available when you retire or if you find yourself in another situation where you need money urgently. While your money is in a super fund, it's protected against creditors. When it's released to you, this protection ceases to exist. Also be very careful - there are illegal programs promising early access to superannuation funds where people have been exploited and charged exorbitant fees. You are likely to have to pay some service fees and cover other costs that the superannuation fund might impose on you for releasing the money early. Last but certainly not least, if the money in question doesn't cover the entire amount you owe, you could end up handing it over to the lender and still losing your home.
How much will I get when I retire?
The amount you will receive when you retire is determined by a number of factors, including:
- How much your employer has contributed to the fund throughout your working life
- Extra contributions you've made
There are many good calculators on the internet for calculating how much you'll receive when you retire. Use these to get a good idea of how much you stand to receive and how you can increase this amount if need be. This isn't exactly what you'll receive - you then have to deduct any taxes and fees that need to be paid. You have the option of withdrawing your super as a lump sum or you can choose to receive it as a pension, meaning you will receive a certain amount every month, or you can combine both options. Note that there is an advantage to accessing your super via a pension because the remaining amount in your super will continue to produce returns as it will continue to be invested. If you opt to take out your super as a lump sum you might have to pay taxes on it and it could have certain Centrelink implications. Generally, it's not considered the best approach to withdrawing money from your super fund and it can have drastic consequences because once you've withdrawn the money, there's no way to put it back. It's often a good idea to consult with a professional financial adviser if you're coming close to retirement age and aren't certain what the best option is in terms of withdrawing your super.
How much will I need when I retire?
According to the Australian Securities & Investment Commission (ASIC), the amount of super you need when you retire depends on a number of factors, including:
- Your lifestyle
- How long you live
- Future medical costs
ASIC also lists the following figures as a rough guide to how much you'll need when you retire.
|Couple||Annual living costs||Lump sum needed|
This number changes if you're single:
|Single||Annual living costs||Lump sum needed|
Clearly, there are both advantages and disadvantages when it comes to accessing your super early. The key is to step back from the situation and be honest with yourself. You need to do everything you can to find other options before accessing your superannuation early because the short-term benefits might not be worth it when one takes into account the long-term losses. If your home is too expensive and you won't be able to pay your mortgage in the future in addition to making repayments now, then you may be better off selling it now. This applies to other situations as well. However, if you really have nowhere to turn, at least you know you can fall back on your super if it's absolutely necessary. Information about what's available to you as a pensioner