Early Access to Superannuation: What You Need to Know

Superannuation is a long-term savings plan mandated by the Australian Government to help its citizens save for retirement. It requires employers of both public and private firms in the country to contribute 9.5% of their employees’ annual wage towards any super fund of the employees’ choice.

The “super” or money is put aside by the employer over the employees’ working life for them to use as a source of income when they retire from work. The more super they save, the more money they will have for their retirement.

Early Access to Super

Ideally, your super should be claimed as a lump sum or an income stream after retirement, when you have reached the preservation age of between 56 and 60 years old, depending on your date of birth.

Accessing your super before your preservation age affects your super balance and future retirement income, as well as Centrelink payments.

However, there are very limited circumstances where your are allowed early access to your super, like severe financial hardship or being unable to work because of disability, illness or trauma. You can also claim amounts and insurance payout if you're involved in non-related work accidents.

To get early access to your super, you must fall into any of the eligibility requirements below:

• Experiencing severe financial hardship
• Suffering from a terminal illness
• Temporary resident
• Have less than $200 in their super fund
• Compassionate grounds

Severe financial hardship

To be considered severely struggling financially, you:

• Must be unable to meet reasonable and immediate family living expenses
• Have continuously received eligible government income support payments for at least 26 weeks

Under this category, you can only withdraw between $1,000 to $10,000. If your super balance is less than $1,000, you can withdraw up to your remaining balance after tax. Only one withdrawal is allowed in a year.

If you have reached your preservation age plus 39 weeks and were not gainfully employed when you apply, there are no cashing restrictions.

A few things to remember:

• There are no special tax rates for a super withdrawal because of severe financial hardship. It is paid and taxed as a normal super lump sum.
• The tax is 17% and 22% if you are below 60 years old. If you're older than 60, the money you withdrew won't be taxed.
• Access to super fund because of severe financial hardship is not administered by ATO. You must contact your super provider to request access.
• If your super provider rrequires evidence, reach out to Services Australia and request for a letter confirming that you have received eligible government income support payments continuously for 26 weeks or more.

Terminal Illness

If you have a terminal medical condition, you can get an early access to your super if all the following conditions are met:

• You have certifications from two registered medical practitioners that you are suffering from an illness or injury that’s likely to result in death within two years of the date of signing the certificate.
• The 2-year certification period has not ended.
• At least one of the registered medical practitioners who certified to your condition is a specialist in the area related to your illness or injury.

You may claim the super directly or request your provider to claim it on your behalf.

Your fund must pay your super as a lump sum. The payment is tax-free as long as the 2-year certification period has not ended.

Temporary Incapacity

If you have a physical or mental medical condition and are temporarily unable to work or need to work fewer hours, you are eligible for early access to super.

Your super will be granted in regular payments or income stream over the time of your unemployment. The withdrawal is taxed as a super income stream and will not incur special tax rates.

Request for early access to super due to temporary incapacity is generally used to access insurance benefits linked to the super account. If you do not have access to insurance benefits as part of your super account, you may be eligible under the “severe financial hardship” category.

Permanent Incapacity

Also called disability super benefit, this early super access is granted if you're permanently incapacitated and your physical or mental medical condition hinders you from ever working again in a job that you were qualified to do by education, training, or experience.

Your super is granted as either a lump sum or an income stream.

The money you claimed is subject to different tax components. To receive concessional tax treatment, your permanent incapacity must be certified by at least two medical practitioners.

If you are under the preservation age and receive a disability benefit as an income stream, you will get tax offsets that reduce the tax rate on the taxed element of the taxable component by 15%. Meanwhile, it will be tax-free if you have reached your preservation age or receive a lump sum.

Temporary Residents

If you are a temporary resident who have worked in Australia and your employer has made super guarantee contributions for you, you can only claim your super once your left the country. This is called Departing Australia super payment (DASP).

Less Than $200 Super

If you have less than $200 in your super fund, you can claim it if:

• Your employment is terminated
• You have found a "lost super" account with a balance of less than $200

There won’t be a payable tax when accessing your super account with less than $200 balance.

Compassionate Grounds

You can access your super before your preservation age if you need money to pay for:

• Medical treatment and transport for you or your dependant
• Palliative care for you or your dependant
• Home loan or council rates to avoid foreclosure
• Disability accommodation for you or your dependant
• Expenses associated with the death, funeral, or burial of dependant

The amount of super that can claim under this category is limited to what you reasonably need to settle your unpaid expense.

The amount you withdraw is paid and taxed as a normal super lump sum, with the tax rate depending on age and the components of the super lump sum.

Covid-19 Circumstances

If you are an employee who have been affected by coronavirus crisis, you can access some of your super early. You may apply once in the 2020-2021 financial year to access up to $10,000 of your super.

If you have applied for the early release of your super under this category in late June 2020, you may receive your money and are still eligible to apply to the current financial year.

Applications for COVID-19 early release of super in the current financial year have been extended to 31 December 2020. The amount released will not be taxed nor required to be included in the tax return.

Eligibility

• You must be unemployed
• You must be eligible to receive a job seeker payment, youth allowance for job seekers, parenting payment, special benefit, or farm household allowance.
• On or after 1 January 2020:
  • Your role was made redundant.
  • Your working hours have been reduced by 20% or more.
  • As a sole trader, your business was suspended or suffered a reduction in turnover of 20% or more.

Super Scams and Schemes

If you desire to access your super early, avoid dealing with promoters who offer various plans to gain early access to your super savings to help pay off debts, buy a house or car, or afford a holiday trip. Often, they do this by transferring your super fund into a self-managed super fund (SMSF), which is illegal.

Aside from being illegal, the money you access would be taxed at 45%. You will also be heavily fined and may spend jail time.

Also, be wary of scammers who:

• Impersonate the ATO or a trusted organisation to steal money or personal information
• Charge for free services, like gaining early access to your superannuation