Nick Bruining: Why your superannuation fund may grant you early access to your nest egg

Nearly three years after the end of a special COVID-19 superannuation access program, funds are still fielding queries from members hoping to tap into their nest eggs before normal retirement conditions are met.

Subject to very strict eligibility rules, people can get early access to part of their super savings on compassionate grounds and to deal with financial hardship.

There is also a booming industry helping people access super for medical and dental purposes, with Australian Taxation Office data showing total withdrawals had surged from $389 million in 2018-19 to almost $545m in the last report year of 2021-22.

Dental treatment more than doubled from $66m to $171m over the three financial years clouded by COVID-19.

In theory at least, the ongoing current medical and compassionate access regime is different to the liberal tax-free COVID-19 pandemic concessions that applied for much of 2020.

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.

The limited number of tough access rules are underpinned by the major purpose of superannuation — to provide a capital sum to either fully or partially fund your retirement.

Unless there are exceptional circumstances, we generally cannot get easy access to our super until we turn 60 and then usually have to wait until retirement to get full-blown access.

Severe financial hardship is one of the conditions that allows your fund to release money directly to you.

The purpose of super was never to provide an emergency cash reserve when things get tough in the meantime. In fact, one of the little understood benefits of super is that, usually, it is one of the few assets that cannot be accessed under bankruptcy laws.

Severe financial hardship is one of the conditions that allows your fund to release money directly to you.

In this case, you need to demonstrate that you don’t have enough money to pay your basic household bills and applicants will need to prove that they 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.

In most cases, the maximum amount that can 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. Bear in mind that closing any super fund — even with a small balance — could 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 the ATO via the myGov portal, or you can ask for a paper application form. The ATO will then, hopefully, authorise your fund to release the money.

Different and more generous rules apply if you are accessing super because of a permanent disability or a 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. But, again, the rules are strict, and in this case the ATO authorises the release of the money. It also assumes that your fund will do it. Not all funds do.

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, but not to pay out the loan.

Be particularly wary of schemes purporting to give you early access to super.

Expenses associated with you or a dependent 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 to 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.

Be particularly wary of schemes purporting to give you early access to super. It often involves the creation of a self-managed super fund, unless you meet the strict criteria for early release of super, and these schemes are illegal.

Promoters often end up in prison with their clients potentially facing big fines and hefty costs to clean up the mess left behind.

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