If you find yourself in challenging financial times, you may consider accessing your super early.
A portion of your pay for most or all of your working life has been saved and accumulates in your super. It’s to help ensure you save funds for your retirement. However, sometimes while you’re working towards that retirement, you could experience hard financial times.
That’s where you could have some options.
Early access to super (Existing rule)
Under existing super rules, there are two exceptions which enable you to draw on your super before you retire (provided you qualify) if it’s necessary to help you deal with certain situations.
- Severe financial hardship
If you’ve been receiving a Centrelink income support payment for at least 6 months and you can’t meet your immediate and reasonable living expenses, you can apply for a payment of up to $10,000 from your super. You can only receive one such payment in any 12-month period. If you think you’re eligible for a severe financial hardship payment you can apply directly to your fund, but you’ll need to provide supporting evidence about your expenses and your Centrelink payments.
- Compassionate grounds
If you urgently need money for compassionate health reasons (e.g. for medical treatment or palliative care for you or a dependent) or to make a payment on your home loan to stop the bank foreclosing, you can apply for release of benefits on compassionate grounds. Compassionate grounds applications are made to the Australian Taxation Office (ATO).
For both early release conditions, it’s important to remember that the payments are subject tax.
Early access to super (Temporary and new rule in response to COVID-19)
The Federal Government recently introduced a new condition which gives you early access to some of your super if you have been financially affected by the coronavirus. Under this condition, you can receive a payment of up to $10,000 from your super in the current, 2019-20 financial year* and a further payment of up to $10,000 in the 2020-21 financial year*. These payments are tax-free.
*Applications for a 2019-20 payment must be made by 30 June 2020 and applications for a 2020-21 payment must be made after 30 June 2020 but no later than 25 September 2020.
You must meet at least one of the following conditions to qualify for an early access payment from your super:
- you are unemployed; or
- you are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment, special benefit or farm household allowance;
- on or after 1 January 2020
- you were made redundant; or
- your working hours were reduced by 20% or more; or
- if you are a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.
The early release payment is not made automatically. To receive a payment, you must apply to the ATO through the MyGov website. The ATO is developing its system to review and approve these requests and expects to have the online application ready to go from mid-April.
Should I apply for early access?
The temporary condition enabling you to take some of your super now is available if you are under financial stress and may be a great help if in your individual circumstances you have no other assets or sources of income to draw on.
But:
Before you apply for early access to your super, you should be aware that a withdrawal now could have quite an adverse impact on the amount you’ll have in your super when you retire. This will primarily be determined by your age, and the number of years you are expected to have remaining in your working life. As a result, you may not be able to enjoy the standard of living in retirement that would otherwise have been possible. In deciding whether to apply for early access, you can weigh up your needs now versus your needs in retirement.
We recommend you seek sound financial advice before you decide to access your super early. Consider with one of our financial planners.
