Can I withdraw my super early to pay off debt?

Emma Duffy By on October 15, 2019
 
withdraw super early

Photo by Alizee Marchand via Pexels

So you’re in a bit of a pickle and you need money – but the only savings you have are those in your super fund, which we all know you can’t access until you’ve retired. But are there any circumstances where you can withdraw your super early?

There are, but you need to have a legitimate reason – so you’ll need to save up for that European holiday, soz. 

When can I access my super early?

According to the Australian Tax Office (ATO), you can only access your superannuation before ‘preservation age’ (a really weird term that basically means the minimum age set by law that your super must be ‘preserved’ until) if you meet one of these eligibility requirements:

  • You have a terminal illness
  • You have less than $200 in your super fund
  • You’re a temporary resident permanently leaving Australia
  • You are in severe financial hardship
  • You meet ‘compassionate grounds’
  • You’re temporarily or permanently incapacitated

Keep in mind that even though these conditions of release are stipulated in superannuation law, not all super funds allow their trustees to receive payment so it’s best to check with your super fund first.

It’s also important to note that early access of super can only be granted for unpaid expenses. So if you’ve already borrowed money from a family member or a friend, or paid for the expense with a loan or credit card, you won’t be eligible to access your super. According to the ATO, you may also end up paying tax on the money you withdraw on these conditions. 

Early access to super on compassionate grounds

One debt-related reason you may be able to access your super early is if the ATO approves you for access on ‘compassionate grounds’. This refers to a situation where you need to pay for certain expenses you have no other way of paying for, such as the funeral of a partner or family member.

Compassionate grounds include:

  • Paying for medical treatment for you or a dependant 
  • Palliative care for you or a dependant
  • Making a payment on a loan to prevent you from losing your home
  • Modifying your home or vehicle for the special needs of you or a dependant because of a severe disability
  • Paying for expenses associated with a death, funeral or burial of a dependant

There’s no set minimum or maximum limit of your super you can access, but the ATO states the amount of super you can withdraw is limited to “what you reasonably need” and is paid as a lump sum. 

Early access to super due to severe financial hardship

According to the ATO, you may be permitted to access a maximum of $10,000 of your superannuation on the grounds of severe financial hardship. To be eligible for financial hardship you must have received government income support payments continuously for 26 weeks and be unable to meet “reasonable and immediate family living expenses”.

You can only make one withdrawal from your super fund because of severe financial hardship in any 12-month period.

In case you were wondering, “reasonable and immediate family living expenses” include:

If you do qualify as being under severe financial hardship, you’ll be allowed to withdraw between $1,000 and $10,000.

Can I access my super to pay off my mortgage?

Yes, you can, because struggling to make your mortgage repayments falls under ‘compassionate grounds’. The ATO states that if you’re at risk of losing your home because you can’t make repayments, you can access your super. This only applies to mortgage arrears – not rental arrears.

With that said, you can only access your super early to make mortgage repayments if:

  • The home is your primary place of residence
  • You are legally responsible for making mortgage or rates payments
  • You have no other way of paying the mortgage (like accessing savings or selling assets)

The ATO also states that you won’t be eligible to access your super early to make mortgage repayments if:

  • You are not currently in arrears on your mortgage or council rate payments, even if you think you might find it hard to pay them in future
  • You are in arrears on your mortgage or council rates but the mortgage lender or council is not threatening to repossess or sell your home 

How much of your super you can access will depend on how much is necessary to make the loan repayments. According to the ATO, the maximum amount you can access in any one 12-month period is:

  • Three months of repayments
  • 12 months of interest on the balance of the loan

The ATO also states they will usually only approve the release of the amount that’s actually required by the lender, which may be less than the maximum amount above.

If you haven’t got enough in super to cover your outstanding mortgage repayments, it’s not necessarily the end of the world. To access your super in this situation, you have two choices:

  1. You can reduce the amount you owe the lender
  2. You can negotiate with the lender to reach an agreement in which they will accept your available super benefit in exchange for not selling your home. The lender has to provide a letter confirming this agreement to the ATO. 

As you can see, the regulations around accessing your super to pay your mortgage are strict but they’ve been designed that way to make sure it’s the last resort.

Other circumstances where you can access your super early

1. You have a terminal medical condition

If you’re terminally ill, you may be able to access your super. According to the ATO, a terminal medical condition exists if:

  • Two registered medical practitioners have certified, together or separately, that you suffer from an illness, or have an injury likely to result in death if within a period that ends no more than 24 hours after the date of certification
  • At least one of those registered medical practitioners is a specialist practising in an area related to your illness or injury
  • The certification period for each of the certificates has not ended 

Your superannuation fund must pay your super as a lump sum and this payment is tax-free if you withdraw it within 24 months of certification.

Some super funds may not allow you to access your super under this condition. If this is the case, the ATO advises you to switch to a super fund that does. 

2. You have less than $200 in your super fund

If you’ve worked multiple casual jobs with multiple employers, it’s likely you also have multiple superannuation accounts floating around with very little $ in them. The good news is you’re entitled to withdraw the balance from each one.

If your employment is terminated (whether you lose your job or quit) and the balance of your super account is under $200, you may be able to access your super. You may also be able to access formerly lost super held by a super fund that is less than $200. No tax is payable on amounts under $200.

You may also want to consider consolidating these amounts into a single super fund to grow your nest egg. You can rollover your super with your eyes shut on the My Gov website. 

3. You are a temporary resident permanently leaving Australia

If you’re a temporary resident leaving the country for good, you may be able to claim the super you earned back as a departing gift, otherwise known as a departing Australia superannuation payment (DASP). 

As always, there are requirements you need to meet to claim your DASP:

  • You accumulated your super while working in Australia on a temporary resident visa 
  • Your visa has now expired or been cancelled
  • You have left Australia
  • You are not an Australian or New Zealand citizen, or a permanent resident of Australia

4. You are temporarily or permanently incapacitated

If you are temporarily or permanently incapacitated (unable to work) you may be able to access your super in the form of insurance benefits or a “disability super benefit”.

If you’re permanently incapacitated, your super fund must be satisfied that you have a permanent physical or mental medical condition that’s likely to stop you from working ever again in a job you were qualified to do by education, training or experience. 

Your super will be paid to you either as a lump sum or as regular payments. While a super withdrawal due to temporary incapacity is taxed as a normal income stream, a super withdrawal due to permanent incapacity is subject to different tax rules.

Are there any implications of accessing your super early?

As long as you have legally accessed your super by one of the conditions of release above, you probably won’t run into any trouble. But if you access your super illegally, it will likely cost you a lot more than the super you access.

Members of self-managed super funds (SMSFs) who illegally access their super early are required to pay interest and significant penalties on the super they have accessed. Trustees of SMSFs incur even higher taxes and additional penalties and can be disqualified. 

If a trustee knowingly allows illegal access to super, they may face penalties of up to $420,000 and a jail term of up to five years, or fines of up to $1.1 million if you’re a corporate trustee.

Phew. Not worth it guys. 

Savings.com.au’s two cents

Superannuation is designed to help us live more comfortably in retirement, so dipping into it before you reach your ‘preservation age’ (for some reason that term makes me think of a jar of pickles) is deliberately a hard thing to do unless you’re in severe financial trouble. The key word here being ‘severe’.

Processing the paperwork to release the funds can take months, so it’s not necessarily the best immediate solution anyway. This is why planning on accessing your super funds early should only be used as a last resort.

Emma Duffy
Emma Duffy joined Savings.com.au as a Finance Journalist in 2019 after spending a year as the editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand.
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