Nick Bruining: How to access your superannuation early, and how much you’re allowed to take

Memories of the COVID-19 pandemic still have some people believing superannuation is there to be accessed if they find themselves in financial trouble.

Missed loan repayments or unexpected bills can create severe financial stress, and dipping into your big pot of super seems like an easy way to ease the pain.

In 2020, members could access up to $20,000 from their super to provide money through the depths of the pandemic lockdown.

Unfortunately, the normal access rules were reinstated in January 2021 and accessing your super before retirement is much tougher than you think.

It’s worth understanding the philosophical reasons behind the restrictions.

Superannuation was specifically established to provide a pool of money for retirement after a lifetime of work.

In the event you don’t make it to a normal retirement age, perhaps through death or a permanent disability, the rules allow your super to be accessed for the benefit of your own care and the upkeep or your loved ones.

In these situations, the amount available is often topped up through life or disability insurance which may be built into your super.

Super affords some significant protections. Most notably, providing it hasn’t been used to specifically hide money from creditors — usually by loading it up with abnormal contributions — super can’t be accessed if you are declared bankrupt.

Apart from death and disability, there are two main ways of accessing your super before the “preservation age” of 60.

Turning 60, however, doesn’t mean you can automatically access the money. You need to have ceased some type of gainful employment after reaching that age. That can be any job, not just your main job.

The first potential access condition is “severe financial hardship”, but the definition of what triggers this condition of release is tough. You need to have been on a Centrelink income support payment for at least 26 weeks and be unable to meet your reasonable and immediate expenses.

Applicable payments might be the JobSeeker allowance or other payment and, in this case, you simply need to provide proof of the payment to your super fund to access the money.

You can only access between $1000 and $10,000 in a 12-month period, and the amount you access is taxable. The taxable component of the withdrawal cops a 20 per cent tax, so you won’t have the full amount to use.

The second way of accessing your super is under “compassionate grounds”. This will require the Australian Taxation Office to agree to the release. You make an application and, if successful, the ATO authorises the super fund to release the money to you.

But this is also taxable in the same way as a financial hardship withdrawal.

There’s no real upper limit, though the amount you need to access will need to be proven, and your specific super fund also needs to permit these types of withdrawals. Not all do.

While the list of requirements is broad, compassionate grounds generally include dealing with lifesaving or critical medical issues for you or your dependants. That might be to relieve chronic pain, deal with mental illness, palliative care, or modifying your home to accommodate a disability.

These remedies must not generally be available through the public health system.

You can also use the compassionate grounds condition to access money for your mortgage to prevent a foreclosure on your principal place of residence. The amount is restricted to the payment on a loan and not the payout of the loan.

Again, you need to allow for tax when making the application to the ATO.

The simplest way to apply for a compassionate grounds withdrawal, is via the myGov website.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association