The summer bushfires have touched the lives of all Australians, unleashing an outpouring of generosity. But for individuals who lost homes, businesses or livelihoods, the financial hardship lingers, prompting many to ask whether they can dip into their super to tide them over.
The short answer is generally no. According to the Australian Taxation Office (ATO), there are very limited circumstances where you can access your super early, mostly related to specific medical conditions or severe financial hardship.
Before we discuss these special circumstances, it’s worth looking at when you can legally access your super under normal conditions.
Accessing super before age 60
Under superannuation law, there are strict rules around when you can start withdrawing your super.
The first hurdle is reaching what is referred to as your preservation age. Once you reach your preservation age – between age 55 and 60 depending on the year you were born – and retire, you can access your super in a lump sum or as a pension. But as a disincentive to early retirement, there may be tax to pay if you access your super before age 60.
Even if you keep working, once you reach preservation age you can access a portion of your super by starting a transition to retirement pension. This can be an effective way to scale back your working hours while supplementing your reduced wages with income from super. There are limits though.
With a transition to retirement pension you can only access 10 per cent of your pension account each year. You also pay tax on the taxable portion of pension income at your marginal rate less a 15 per cent offset. And earnings on assets supporting your pension are taxed at the normal super rate of 15 per cent.
Preservation age based on date of birth
|Date of birth||Preservation age|
|Before 1 July 1960||55|
|1 July 1960-30 June 1961||56|
|1 July 1961-30 June 1962||57|
|1 July 1962-30 June 1963||58|
|1 July 1963-30 June 1964||59|
|From 1 July 1964||60|
Accessing super from age 60
From a tax perspective, things improve from age 60, when you can access your super tax free provided you are no longer working. And from age 65, you can access your super tax free even if you haven’t retired.
Of course, anyone who has suffered financial hardship as a result of the bushfires and has already reached their preservation age could dip into their super under the normal rules, provided they retire or start a transition to retirement pension.
But what about people who don’t qualify under the normal rules? That’s where the early access rules governing severe financial hardship or compassionate grounds come in.
Severe financial hardship
There’s no question the recent bushfires have caused severe financial hardship for many people in the community. But for superannuation purposes, the definition of hardship will mean few people can use it to gain early access to their super.
Under the super regulations, you can gain access to at least part of your super as a lump sum if:
- You have been receiving certain government income support payments (including Newstart, sickness, parenting or farm household allowances) continuously for at least 26 weeks, and
- You are unable to meet your reasonable and immediate family living expenses.
Even then, you can only receive a maximum payment of $10,000 a year before tax.
If you have reached your preservation age plus 39 weeks, you may be able to access your entire super balance as a lump sum or pension (as opposed to 10 per cent of your balance each year with a transition to retirement pension) if:
- You are employed for less than 10 hours a week, and
- You have received government income support payments for at least 39 weeks since reaching preservation age.
Access on compassionate grounds
You may be able to take some money out of super early on compassionate grounds but, once again, strict rules apply. The money can only be taken as a lump sum and used to cover unpaid expenses including:
- Medical treatment or transport for you or one of your dependents, but only for a chronic or life-threatening illness not available through the public health system,
- Modifications to your home or vehicle to accommodate a severe disability,
- Palliative care or funeral costs of a dependent, and
- To prevent foreclosure on your mortgage if your lender threatens to repossess or sell your home.
Whether you are applying for early access to super under the rules for severe financial hardship or on compassionate grounds, normal superannuation tax is payable.
High barriers to early access
It’s understandable that people who have suffered personal and financial hardship as a result of the bushfires or other natural disasters might want to use some of their super to help them get back on their feet. Unfortunately, the rules governing early access make it extremely difficult to qualify.
The reason for such high barriers to early access is that super is meant to be used for the sole purpose of providing retirement income.
If you would like to discuss when and how you can access your super, under the normal rules or due to special circumstances, please give us a call.
H & C Financial Partners Pty Ltd, ABN 29 601 879 770 are Authorised Representatives of Synchron, AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.