On this page
- New temporary measure due to coronavirus
- What is meant by severe financial hardship?
- Can I access super early to pay off debts?
- What’s the difference between severe financial hardship and compassionate grounds?
- You can also access your super early if you are terminally ill or incapacitated
- How do you apply for early super release due to severe financial hardship?
- Do the rules differ if you’re in an SMSF?
- What are the tax implications?
- The bottom line
On 22 March 2020 the federal government announced a temporary measure allowing individuals affected by the coronavirus to access up to $10,000 of their superannuation in 2019/20 and a further $10,000 in 2020/21.
You can apply for early release of your super from mid-April, provided you satisfy one or more of the following:
- You are unemployed
- You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (including the single and partnered payments), special benefit or farm household allowance
- On or after 1 January 2020:
- You were made redundant
- Your working hours were reduced by 20% or more
- If you are a sole trader and your business was suspended or your turnover has reduced by 20% or more.
Individuals will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.
On 4 April 2020 it was announced that these temporary rules would also apply to most temporary visa holders with work rights, including international students and temporary skilled visa holders.
How to apply
Treasurer Josh Frydenberg said the process is designed to be frictionless, with eligible individuals able to apply online through the MyGov website rather than going to their super fund. However, you will need to certify that you meet the above criteria.
Your application will then be handled by the ATO. If it finds you are eligible, it will notify your super fund to release your super payment.
Separate arrangements apply to SMSFs, with guidance to be available on the ATO website. (At the time of writing, these details were not yet available.)
A popular measure
In announcing the temporary early release of superannuation measures, Prime Minister Scott Morrison rightly said that it’s your money.
The early indications are that most Australians agree.
In a snap poll of 723 Australians aged 18+, a resounding 79% of respondents agreed that people in financial difficulty should be able to access up to $20,000 of their super. Market research group Roy Morgan conducted the SMS survey the day following the government’s announcement.
Early access should be a last resort
While super is indeed your money, it’s worth remembering that the hole in your retirement savings will also be your money.
SuperRatings estimate that a 25-year-old withdrawing $20,000 from their super over the next 12 months could lose $58,000 from their super balance at retirement in today’s dollars. A 35-year-old could lose $45,000 and a 45-year-old could lose $35,000.
The chart below shows the figures in today’s dollars, and in future dollars (allowing for 2% inflation).
Source: SuperRatings. Assumptions based on ASIC’s MoneySmart calculator using a Growth option with an assumed investment return of 5% before fees and taxes on earnings.
These are rough estimates based on averages, but they do give a sense of what is at stake.
Explore all your options
Many Australians currently face, or may soon face, real financial hardship. But before accessing your super, it’s worth exploring other sources of emergency funds announced as part of the government’s coronavirus support packages for individuals and households.
Retirees might also consider accessing the equity in their home via the government’s Pension Loans Scheme.
We will provide updates as soon as the government releases further details about temporary access to your super.
Treasury has provided the following example scenarios to better understand the temporary measures:
Ed the bartender
Ed works in a popular bar in Melbourne. As a result of the coronavirus, Ed has had his work hours reduced from 40 hours on average in the second half of 2019 to 20 hours per week on average in May 2020. As a result, Ed determines that his hours over the last month have reduced by more than 20 per cent compared to the average of his hours over the last six months of 2019.
Ed decides to apply for the early release of $8,000 of his superannuation in May 2020 to help pay his rent and other living expenses. Ed self-certifies that he is eligible for early release on myGov. He could have applied for up to $10,000 but chose not to. Ed cannot seek any further early release of superannuation in 2019–20 on the grounds that he has been affected by the adverse economic effects of the coronavirus.
However, Ed finds after 1 July 2020 that his hours continue to be reduced by more than 20 per cent compared to the average of his hours in the last six months of 2019. Ed decides to make a second application and self-certifies through myGov that he is eligible for early release. He is able to apply again for a release of up to $10,000 of his superannuation. Ed submits a second application for the full amount of $10,000 this time.
For each application, the ATO approves Ed’s early release and notifies both him and his superannuation fund. Ed has received a total of $18,000 of his superannuation in two separate payments. He will not be taxed on this amount and is free to spend this money on anything he chooses, or save it for future expenses. He is also free to recontribute any unused amounts to his superannuation in the future (within his contribution caps).
Rachel the sole trader
Rachel is a sole trader with a catering business. At the end of July 2020, Rachel seeks to apply for an early release from her superannuation for the 2020–21 financial year.
Due to the economic effects of the coronavirus, Rachel’s turnover for July is $5,000 compared to $10,000 on average per month for the second half of 2019. Rachel therefore determines that her turnover has reduced by more than 20 per cent compared to her average turnover over the last six months of 2019.
Rachel self-certifies that she is eligible for early release and applies to have $10,000 released from her superannuation.
Watch out for scams
The remainder of this article reflects the rules prior to the new temporary arrangements. If you are ineligible under the temporary rules, you may still be eligible under the usual rules.
Accessing super early due to severe financial hardship is possible under Australian law, provided that you meet strict eligibility conditions and your super fund allows it.
Normally you can only access your super once you’ve reached your preservation age and met a condition of release (such as retiring from the workforce or turning 65). Your preservation age is between 55 and 60, depending on your date of birth.
However, these super release conditions can be waived due to severe financial hardship.
What is meant by severe financial hardship?
If you haven’t reached your preservation age, the Australian Taxation Office (ATO) will consider you to be in severe financial hardship if you meet the following three criteria:
- You have received government welfare payments from the Department of Human Services (DHS) for at least 26 consecutive weeks (with the exception of ABSTUDY, Austudy or Youth Allowance student payments)
- You are still receiving those payments when you apply for the early release
- You are unable to pay your reasonable and immediate family living expenses.
Living expenses include:
- Overdue mortgage repayments
- Rent arrears
- Outstanding bills
- Car repairs
- Medical expenses
The minimum amount of your super than can be released early under the severe financial hardship provision is $1,000 and the maximum is $10,000. The only exception to this is if you’ve reached your preservation age and have not met a condition of super release. In this situation, there are no restrictions on the amount that can be accessed, provided you:
- Have been receiving DHS payments for at least 39 consecutive weeks
- You don’t have a full or part-time job at the time you apply.
Only one early release is available under the severe financial hardship provision in any 12-month period.
It’s important to remember that any super money you withdraw early will impact on the funds you have available for retirement. You should fully explore all your options before going down this path. For example, try and work out alternative payment arrangements with your lenders if possible, or contact the National Debt Helpline for advice.
Can I access super early to pay off debts?
Yes, but it’s important to understand that early super payments made under the severe financial hardship provision can only be used to pay your reasonable living expenses. Funds are also only available for payments that are in arrears, not for future repayments or to clear debt.
What’s the difference between severe financial hardship and compassionate grounds?
‘Severe financial hardship grounds’ for accessing super early are different from ‘compassionate grounds’ (which is another potential way that super can be accessed early under Australian law). It’s important to understand the difference between these two categories because there are different terms and conditions for access.
The major difference is that you don’t need to have been receiving DHS payments to be eligible for accessing super early on compassionate grounds (like you do under the severe financial hardship provision). Also, the compassionate grounds provision applies only to your inability to pay one or more of the following expenses:
- Your own (or one of your a dependant’s) medical treatment or transport for a life-threatening or mental illness, or one that generates chronic pain
- A mortgage or council rates payment to prevent you from losing your home
- Home or vehicle costs to accommodate your own (or a dependant’s) disability
- Paying for your own (or a dependant’s) palliative care
- Paying for the death, funeral or burial expenses of a dependant.
You can also access your super early if you are terminally ill or incapacitated
If you’re diagnosed with a terminal medical condition you can access ALL of your super early under Australian law, not just a maximum annual payment of $10,000.
If you’re diagnosed as being temporarily or permanently incapacitated you may be eligible for insurance benefits through your super fund if you have this coverage. In the case of temporary incapacity, payments can be made while you’re unable to work. If you’re permanently incapacitated, you can receive all your super either as a lump sum or as a regular stream of payments.
How do you apply for early super release due to severe financial hardship?
If you wish to seek early release of your super on severe financial hardship grounds, your first port of call is to apply to your super fund.
If your fund doesn’t allow for this type of release, you may be able to transfer your super to one that does.
Different super funds will have different application requirements, but generally you’ll need to show that you meet the eligibility requirements by:
- Explaining the cause of your severe financial hardship, including the arrears you have for living expenses
- Explaining how you’ll spend the money if your application is approved
- Providing evidence of you and your family’s income and expenses to show that you can’t meet your living expenses
- Providing a financial hardship letter from the DHS or Centrelink showing you’re currently receiving income support and that you’ve have done so for the required eligibility period (i.e. at least 26 weeks if you haven’t reached your preservation age, or at least 39 weeks if you have but don’t meet a normal condition of release).
Your super fund will assess all this information in deciding whether or not to approve your application.
Do the rules differ if you’re in an SMSF?
No. SMSF trustees are legally obliged to assess any member applications for early super release using the same severe financial hardship eligibility criteria outlined above.
The ATO can impose severe penalties on SMSF trustees for the illegal or unauthorised early release of super funds. These penalties can include very heavy fines (up to $420,000 for individual trustees and up to $1.1 million for corporate trustees) and up to five years imprisonment.
What are the tax implications?
If you’re approved to access some of your super early on compassionate grounds, the amount is paid and taxed as a lump sum. If you’re aged under 60, the amount will be taxed between 17 and 22 per cent.
The actual rate of tax will depend on whether your early withdrawal is a lump sum or an income stream, and whether it’s made up of taxable and non-taxable components.
However, if you’re over 60, the early super funds you receive will be tax free.
It’s important to understand that any early super payments you receive will usually count towards your taxable income in the year that they’re received. This can also affect your eligibility for government welfare payments.
Jenny is 45 years old and satisfies all the eligibility criteria for early access to super under the severe financial hardship provision. She applies to her super fund and is eligible for the maximum payment of $10,000. This amount consists of a taxable component of $7,300 and a non-taxable component of $2,700.
Jenny must include the $7,300 taxable component in her taxable income on her tax return for that financial year. She’ll be taxed between 17 and 22%.
Jenny won’t pay any tax on the $2,700 non-taxable component.
While temporary access to super due to the coronavirus, or access under the usual severe financial hardship rules, provides a welcome safety net, it should be regarded as a last resort.
This is especially the case after a major market fall, when withdrawing money from your super will not only crystallise your losses but potentially shortchange your future.
Remember that your super is designed to fund your retirement, so any early withdrawal now will impact the amount you’ll have available when you retire. You’ll also lose the power of compound interest on the withdrawn funds. That power can be substantial over time.
It’s worth seeking independent professional advice about whether an early release of your super is appropriate for your individual circumstances. Or indeed if you may be able to access alternative sources of income from Centrelink or government agencies to get you through a tough patch.
Learn more about accessing super in the following SuperGuide articles:
- Early release of super on compassionate grounds
- When can I access my super? All conditions of release explained
- Retirement age calculator: When can you access your super or the Age Pension?
- Your tax guide to accessing your super under age 60
- Over age 60? A simple tax guide to accessing your super benefits
- What are unrestricted and restricted non-preserved super benefits?
- Accessing super: Ceasing employment after 60
- Accessing super: Reaching preservation age and retiring
- Accessing super: Reaching age 65
- What is the retirement age in Australia?
The information contained in this article is general in nature. Accessing your super is an important financial decision and it’s best to seek independent professional advice based on your individual financial needs and circumstances.