If you intend to access your superannuation early, there are limited circumstances in which you can do so. You can withdraw some of your super based on compassionate grounds to help pay for your expenses, especially when you have no other means of paying for them. How much of your super you can withdraw will be limited to the reasonable amount you need to pay for expenses. This guide will cover everything you need to know about accessing your super early based on compassionate grounds to help relieve you of your financial burden.
What is compassionate grounds?
Compassionate grounds is a criterion of law that applies to individuals who are seeking consideration to access their super early. This may be due to several reasons including needing money to pay for:
- Medical expenses (i.e. treatment and transport) for the applicant or their dependant
- Money for buying disability aids that cater to the applicant’s disability or their dependant
- Palliative care for the applicant or their dependant
- Expenses relating to the death, burial, and burial of the applicant’s dependant
- Payment for a home loan or council rates to avoid losing property
Like with a standard super lump sum, the super you’ll withdraw will be paid and taxed as well. The tax rate will depend on a variety of factors such as age and other components of the super lump sum and will automatically be deducted from your super account by your provider.
Who is eligible for release of super based on compassionate grounds?
To be eligible for compassionate release of super, all of the conditions listed below should be met by the applicant. If you do not meet one of the eligibility criteria, you won’t be able to access your super early. Here are the eligibility requirements:
Condition 1 – Meeting eligibility requirements based on compassionate grounds you’re applying for:
- Medical expenses (treatment or transportation)
- Severe disability
- Palliative care
- Funeral expenses
- Prevent the forced sale of a home
Condition 2 – You have not yet paid the expenses for the compassionate grounds you’re applying for. Approval of a compassionate release of super will only be granted for unpaid expenses. For example, if you have paid for the expenses using a credit card loan or money borrowed from other sources, then you don’t meet the eligibility requirements for compassionate grounds.
Condition 3 – You are unable to pay for part or all of the expenses for the compassionate grounds you’re applying for. This means all you have left is your super and you can’t pay your expenses without:
- Acquiring a loan
- Reaching into your savings account
- Selling assets, investments, or shares
Condition 4 – You are a citizen or a permanent resident of Australia or New Zealand.
Condition 5 – You are capable of providing all supporting documents to back up your application.
Benefits of accessing your super early
There are a couple of benefits to accessing your super early based on compassionate grounds. One advantage is that you will be able to keep your most valuable assets (i.e. your home and savings account) and pay for your expenses. At a time where employment rates have plummeted due to the coronavirus outbreak, acquiring the necessary funds to pay for a home loan or medical treatment can be quite difficult. By accessing your super early, you can relieve yourself from financial distress caused by these circumstances.
Understanding your options
Just because you can access your super early, doesn’t mean you should. There are implications to an early release of super like impacting your pension by as much as $30,000-$90,000. When you retire. Basically, you’re sacrificing your retirement savings to cope with your necessary expenses of today. This is why you should contemplate your options and speak to your super provider before accessing your super early on compassionate grounds.
Some of the questions you should ask your super provider are:
- Can they release your super early based on compassionate grounds?
- Is there sufficient balance in your account to release your super early?
- Are there any fees for releasing super early based on compassionate grounds?
- How much tax on the amount will be released?
- What are the insurance implications attached to your account when you access your super early?
If your super provider does not allow an early release of super, you may be able to transfer your super to a different provider that grants compassionate release of super. If you have a self-managed super fund, you will need approval from the Australian Taxation Office (ATO) to access your super early.
You may also want to consider talking to an independent financial advisor about the compassionate release of super. They may be able to help you with your situation and present you with other options like financial hardship arrangements through banks or using a dispute resolution scheme. An early release of super will generally count towards your assessable income for reasons none other than income tax and will be included in tax returns, thus affecting any child support or family tax benefit that you receive. For any additional queries do not hesitate to get in touch with us at Sterling Debt Advisory who offer advice on all debt solutions in Melbourne.