As individuals get closer to retirement, many are seeking further advice to help them better understand the circumstances required to allow them to access their superannuation savings, often with the desire to access their super at an earlier age. Many consumers often don’t understand the rules and conditions necessary to allow for the release of their super savings.
According to a recent AMP report “In particular, many Australians don’t realise they can access super early if they change jobs between the ages of 60 and 65, even if they continue working in a new job, however, super benefits can be accessed as a tax-free lump sum during this period, or used to commence a retirement income stream, which receives both a tax exemption on earnings, and has no maximum pension restriction.”
With respect to the desire to access super balances early, there are very limited circumstances when you can access your super early. These circumstances are mainly related to specific medical conditions or severe financial hardship.
Consumers need to be aware that some promoters claim to offer early access to your super by transferring your super into a self-managed super fund. These schemes are illegal and heavy penalties apply if you participate. Access to your superannuation outside of the traditional “retiree – commencement of pension” methods are limited and well policed by the regulators.
Access on compassionate grounds
You may be allowed to withdraw some of your super on compassionate grounds. Compassionate grounds include:
- paying for medical treatment for you or a dependant
- making a payment on a loan to prevent you from losing your house
- 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.
Access due to severe financial hardship
You may be able to withdraw some of your super if you have received eligible government income support payments continuously for 26 weeks and are unable to meet reasonable and immediate family living expenses.
A super withdrawal due to severe financial hardship is paid and taxed as a super lump sum. The minimum amount that can be paid is $1,000 (unless your super balance is less than $1,000) and the maximum amount is $10,000. You can only make one withdrawal from your super fund because of severe financial hardship in any 12-month period.
There are no cashing restrictions under severe financial hardship if you have reached your preservation age plus 39 weeks and you were not gainfully employed on a full-time or part-time basis at the time of application.
Access due to terminal medical condition
You may be able to access your super if you have a terminal medical condition.
A terminal medical condition exists if:
- two registered medical practitioners have certified, jointly or separately, that you suffer from an illness, or have an injury, that is likely to result in death within a period (certification period) that ends no more than 24 months after the date of the certification
- at least one of the 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 fund must pay your super as a lump sum. The payment is tax-free if you withdraw it within 24 months of certification.
Access due to temporary incapacity
You may be able to access your super if you are temporarily unable to work or need to work less hours because of a physical or mental medical condition. This condition of release is generally used to release insurance benefits from a super fund.
You will receive the super in regular payments (income stream) over the time you are unable to work. A super withdrawal due to temporary incapacity is taxed as a normal super income stream.
Access due to permanent incapacity
You may be able to access your super if you are permanently incapacitated. This type of super withdrawal is sometimes called a ‘disability super benefit’.
Your fund must be satisfied that 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.
At least two medical practitioners must certify this for you to receive concessional tax treatment.
You can receive the super as either a lump sum or as regular payments (income stream). A super withdrawal due to permanent incapacity is subject to different tax components.
Superannuation Balances less than $200
You may be able to access your super if your employment is terminated and the balance of your super account is less than $200, or if you have formerly lost super held by a super fund or by us that is less than $200.
Other questions often raised with advisers include:
- How much can be contributed to super through non-concessional contributions?;
- How transition to retirement pensions work?;
- Understanding how the superannuation death benefit works; and
- Understanding how total and permanent disability insurance works within superannuation.
Consumers should seek out advice from their financial planner for further information.