Thinking About Accessing your Superannuation Early?
Although many Australians think of their superannuation as an enforced savings account that's locked tight until their retirement, there are actually a number of special circumstances that allow you to access it early, with the most talked about being the new release rules implemented by the government for people suffering economic hardship caused by COVID-19.
In this article, we'll cover both the old and new rules relating to accessing your super early and discuss the key factors to consider before applying.
What is Superannuation?
Superannuation (often abbreviated to super) is money that's paid into a super fund during your working life in order to provide you with an income once you retire. Although Australia does have an Age Pension payment scheme in place it's only designed to provide for the most basic necessities. Therefore, maintaining a healthy super fund can be vital for ensuring you can maintain the standard of living and enjoyment you're accustomed to during your retirement years.
For most workers in Australia super is a right that is enforced by the Superannuation Guarantee (SG). Under this legal obligation, if you are aged 18+, earning more than $450 a month and regarded as an employee for tax purposes, your employer is required to pay 9.5% of your gross income (including bonuses, commissions and loadings) into a super account in your name.
When can you Access your Superannuation?
Usually, you are only able to access your super once you've reached your 'preservation age' (based on your date of birth and generally between 55-65) as well as meeting a condition of release, the most common of which are:
- Reaching preservation age and retiring
- Reaching preservation age and starting a transition-to-retirement income stream (TRIS)
- Being aged 60+ and ceasing your employment arrangement
- Being aged 65+ or over; or
Can you Access your Superannuation Early?
A limited number of special circumstances exist that allow super to be released to you by the Australian Taxation Office (ATO) before the preservation age is reached. Each criterion and the eligibility requirements are outlined below:
Severe Financial Hardship
You may be able to withdraw between $1,000 - $10,000 from your fund if:
- You have received eligible government income support payments continuously for 26 weeks
- You are not able to meet reasonable and immediate family living expenses
You may be able to withdraw some of your super to cover the costs of:
- medical treatment or medical transport for you or your dependant
- palliative care for you or your dependant
- making a payment on a home loan or council rates that would otherwise result in homelessness
- accommodating a disability for you or your dependant
- expenses associated with the death, funeral or burial of your dependant
Terminal Medical Condition
The ATO considers a medical condition terminal if:
- Two registered medical practitioners have certified, jointly or separately, that you suffer from an illness or injury that is likely to result in death within 24 months of the date of signing the certificate
- At least one of the registered medical practitioners is a specialist practising in an area related to your illness or injury
- The 24-month certification period has not ended
Temporary Disability (mental or physical)
- If you are temporarily unable to work or have to work reduced hours because of a physical or mental medical condition then you may be able to access your super in the form of regular payments
- The conditions of release are usually tied to insurance benefits linked to your super account. Contact your super fund to find out if you are eligible
Permanent Disability (mental or physical)
You may be able to access your super in the form of a lump sum or regular payments if:
- Your fund recognises you have a permanent physical or mental medical condition that is likely to stop you from ever working again in a job you were qualified to do by education, training or experience
- To receive concessional tax treatment on your super withdrawal, your permanent incapacity must be certified by at least two medical practitioners
Super Amounts Under $200
You can withdraw your super with no tax implications if:
- You have found a lost super account containing less than $200
- Your employment is terminated and your super account contains less than $200
First Home Super Saver Scheme (FHSS)
- Under the FHSS scheme, you can apply to release voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions you have made to your super fund since 1 July 2017 if you meet the eligibility requirements
- A maximum of $15,000 of voluntary contributions from any one financial year can be released under the FHSS, up to a total of $30,000 contributions across all years' contributions
Please note that the points above have been condensed for brevity and ease of reference. You can find more information on the eligibility requirements and any relevant tax implications here.
Changes to Super Access Rules due to COVID-19
Due to the economic disruption caused by COVID-19 and the subsequent impact it has had on the job market, the Australian Government has eased the rules around the early release of super. Under this temporary measure eligible Australian or New Zealand citizens and permanent residents are able to access up to $10,000 during the 2019-2020 financial year, and a further $10,000 during the 2020-2021 financial year, for a total of $20,000.
What are the eligibility requirements?
In order to apply you must be a citizen or permanent resident of Australia or New Zealand and have at least one of the following circumstances apply:
- Be unemployed
- Be made redundant or have your working hours reduced by 20% or more (including to zero) on or after 1 January 2020
- Be a sole trader whose business was suspended or saw a reduction in turnover of 20% or more (partners in a partnership are not eligible unless the partner satisfies one of the other eligibility requirements)
- Be eligible to receive either the JobSeeker Payment, Youth Allowance (excluding those undertaking full-time study or a new apprenticeship), Parenting Payment (including single and partnered payments), Special Benefit or the Farm Household Allowance
Do I need to provide any documents or evidence to apply?
No supporting documentation is required in order to lodge your application for early super release due to COVID-19. However, in some cases, the ATO may ask you to provide additional evidence to support your eligibility. These can include, but are not limited to:
- Letters, emails or rosters from your employer
- Bank statements
- Business cash flow and turnover records
- Public notices confirming your business has closed (online or offline)
- Documents confirming eligibility for relevant government allowances or benefits
- Separation certificate
How do I lodge an application?
If you want to access super under the COVID-19 early release scheme you can do so by:
- Setting up or logging into your myGov account and linking it to the ATO
- Having your bank account details available (please note only Australian banks are accepted for depositing funds)
- Checking your super balance to ensure there is enough available to withdraw
- Applying via the ATO myGov portal
One thing to bear in mind is that myGov will only show your super balance as of 30 June 2019, so it may not be wholly reflective of how much you currently have. If you believe that the MyGov figure is incorrect you should contact your super fund directly to obtain up-to-date balance information.
What should you consider before Accessing Super Early?
It would be wise to think long and hard before obtained early access to your super. Some of the main considerations to take into account are:
Short-term benefit vs. long-term loss. Perhaps the biggest risk of early withdrawal is forfeiting any potential increases gained from compound interest. As mentioned at the start of this article many Australians will be looking at around 20 years of retirement, so depending on your age what you withdraw now might represent a significant dent in your post-work nest egg later (based on the historical performance of most super funds)
Stock market decline. Since superannuation is tied to investments (albeit safe and stable ones for the most part) the significant hit that the stock market has taken during COVID-19 means your fund amount may have already been reduced. So by withdrawing super now you may essentially be 'buying high and selling low'.
Insurance policy implications. You also need to consider how any life insurance or total and permanent disability (TPD) insurance you have within your super may be impacted. If you are withdrawing super early you will need to ensure that there is enough left in your account to cover any ongoing premiums if you wish to maintain the insurance. Failure to do so may result in the suspension or cancellation of the policy.
With all that being said, an immediate cash injection might be needed by some to keep a roof over their heads and food on the table. If your financial obligations can't be met with your current income (due to salary reduction or redundancy) and no savings or other assets are available to you, then accessing your super may be an option available to you. A silver lining to this is that there is no tax applied to withdrawals under this scheme, so you can offset the loss to a degree by making voluntary contributions later. To be clear, however, we are not recommending either way that you do or do not obtain early access your super.
What other Financial Assistance Options are Available?
Many other relief options, both government and non-government, have been introduced to assist Australians suffering from financial hardship due to COVID-19. These include mortgage repayment support, help with your utility bills, casual worker support and rent relief. If you think you won't be able to make a payment you should contact your provider first before opting to withdraw super. SocietyOne customers can find assistance for COVID-19 related financial hardship here.
If you are still employed but are juggling multiple debts then it may be worth seeing if you can consolidate them into one single payment. This can help you with managing your finances and may even result in a lower overall interest rate. If you think this is something that might be beneficial you can find more info about how debt consolidation works in our handy guide or get your estimated interest rate with our consolidation loan calculator.
Answers to other Common Superannuation Questions
Question. Am I still eligible for the COVID-19 early withdrawal if I have previously accessed my super early?
Answer. Yes, you can still apply for the COVID-19 early withdrawal even if you have previously accessed your super early under other circumstances.
Question. How much long-term value could I stand to lose by withdrawing from my super fund early?
Answer. This is hard to calculate due to external factors such as when you began contributing, your fund's investment return percentage and inflation, but forecasting conducted by Super Consumers Australia found that for a person aged 30, $20,000 of super would increase to $49,823 by the time they reach retirement age.
Question. Can I withdraw my super early if my dependant meets the eligibility criteria?
Answer. No, if your dependant is financially affected by COVD-19 they must apply themselves.
Question. Will accessing my super early impact my credit score or reduce my future borrowing power?
Answer. No, a super withdrawal isn't considered a form of credit, so it won't be included in any official credit report. You can learn more about what factors impact credit score or what gets recorded on your credit report here.
Question. Are temporary residents eligible for this scheme?
Answer. No, temporary residents cannot apply for a COVID-19 early release of super. However, if your visa has expired and you have left Australia you may be eligible for the Departing Australia Superannuation Payment (DASP).
Important: This article contains factual information only and does not contain any advice, whether in a general sense or after taking into account your personal circumstances. You should consider your own financial position, objectives and requirements and seek financial advice before making any decisions regarding your superannuation.
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