Nick Bruining: Need cash? Rules on early release superannuation are strict. Here’s when you can and can’t

Consistently sitting in the top five of all questions directed to superannuation fund call centres is: ”How can I access my super early?” The typical response is: “You can’t, unless …”

At the heart of the rigid access rules lies the underlying principle of superannuation. It is there to provide a capital sum for your retirement or — in the event you don’t make it — it’s money for your dependents.

On the plus side, super can’t normally be accessed in the event of a catastrophic financial event like bankruptcy.

Normal “conditions of release” include death and total and permanent disability, and once you reach preservation age — which is now 60 — the money becomes reasonably accessible.

If you cease employment after reaching 60, in most cases you can access your super tax-free.

That access rule does not require you to cease your main job. You could start and finish a part-time job and that would allow you to “tick the box”.

At 65, even that condition is relaxed, subject to your fund’s individual rules.

Special early access rules apply to anyone hoping to withdraw money from super when they are under 60.

“Severe financial hardship” is one of the conditions that allow your super fund to release money directly to you.

In this case, you need to demonstrate you don’t have enough money to pay your basic household bills. You will also need to have been receiving eligible Centrelink income support payments for at least 26 weeks.

Eligible payments include JobSeeker, but not Austudy, Abstudy or Youth Allowance if you are studying.

The maximum amount that can normally be accessed under this condition is between $1000 and $10,000 in any 12-month period. If the balance of your fund is less than $1000, you can apply to close the fund.

Just be mindful that closing any super fund, even with a small balance, might also wipe out valuable life insurance benefits attached to the fund.

Your super fund can authorise some payments, but in most cases, you will have to apply to release the funds to the Australian Taxation Office via the myGov portal. Alternatively, you can ask your fund or the ATO for a paper application.

Different and more generous rules apply if you are accessing super because of a permanent disability or terminal illness.

In this case, the balance might be enhanced substantially with life insurance policies attached to your membership. A few thousand dollars in super could suddenly become several hundred thousand dollars if an insurance claim is paid.

Again, the super fund can release money when the necessary proof is provided. Different tax rules apply and, in many cases, the benefit is tax-free.

Compassionate grounds are another reason you can access your super early. The rules here are very strict, and in this case the ATO must authorise the release of the money. It also assumes your fund allows early access. It is not compulsory, and not all funds will do it.

If your house is about to be sold because of a pending foreclosure and you have no access to other funds, you can apply to have funds released for payments.

You cannot use this reason to pay out the loan.

Expenses associated with you or a dependant that relate to medical and associated expenses that aren’t available through the public health system might also be covered.

Payment for life-saving treatments, modifications to your home, palliative care expenses and funeral costs are among those on the approved list.

When the money is to be used for specific medical treatments, the application to the ATO must be accompanied by certificates from two doctors, including one specialist.

Release of funds can be approved if the money will be used to treat a life-threatening illness or injury, alleviate acute or chronic pain, or alleviate an acute or chronic mental disturbance.

Once again, the funds are released only if those treatments are not available through the public health system.

The taxable portion of super money accessed under early release laws is usually subject to tax of either your marginal tax rate or 22 per cent, whichever is lower.

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