You can access your retirement savings early in some circumstances. 

Life and our environment can throw us some curveballs and doesn’t always go the way we wish it or mess up with our plans. 

Unexpected events such as the crisis with the coronavirus Covid 19 pandemic or being stepped down from our workplace temporarily with no insight of when things will go back to normal and if they will in some people’s circumstances.

Adjusting to make ends meet in these uncertain times, a loss of income and extra expenses can compound the problems.

The financial struggle can be even more frustrating knowing that savings are locked away and inaccessible in superannuation or your retirement savings. But your super fund might just be your saviour.

Accessing Your Retirement Savings

Access to your retirement savings is possible only once you reach retirement age or when you reach 65. 

Certain circumstances such as financial hardship, compassionate reasons and permanent disability conditions may allow you to access your retirement savings or super earlier on these grounds.

Accessing your retirement savings or super early to solve an immediate problem may come at the detriment of future lifestyle and living circumstances as it reduces the amount you have available to fund your retirement years. 

Qualifying Rules to Access Retirement Savings

Life can never be predictable and can deal us a bad hand at times, and you need to access super, you are not alone. 

The number of people accessing super for compassionate grounds has been increasing and in 2016-17 more than $200 million was withdrawn from super for these reasons.

The rules for what qualifies as compassionate grounds are strict. 

Generally, the conditions related to critical illnesses or a pending foreclosure on your home.

Early Release of Retirement Savings – Super

COVID-19 (novel coronavirus) 

The government is allowing individuals affected by COVID-19 to access up to $10,000 of their superannuation retirement saving in 2019–20

A further $10,000 in 2020–21.

Individuals will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.

From mid-April, eligible individuals will be able to apply online through myGov to access up to $10,000 of their superannuation retirement savings before 1 July 2020. 

They will also be able to access up to a further $10,000 from 1 July 2020 until 24 September 2020.

Applying for Early Release Retirement Savings

To apply for early release of retirement savings you must satisfy any one or more of the following requirements:

• You are unemployed.
• Job Seeker payment, youth allowance.
• Parenting payment (which includes single and partnered payments
• Special benefits or farm household allowance.
• special benefit or farm household allowance.
• On or after 1 January 2020, either

• you were made redundant
• your working hours were reduced by 20% or more
• if you are a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.

Retirement Savings Access and Severe Financial Hardship

Severe financial hardship is not administered by the ATO. 

You need to contact your super provider to request access to your super due to severe financial hardship.

You may be able to withdraw some of your super if you meet both these conditions:

• You have received eligible government income support payments continuously for 26 weeks.
• You are not able to meet reasonable and immediate family living expenses.

If you withdraw your retirement saving or super due to severe financial hardship it is taxed as a super lump sum.

The minimum amount that can be withdrawn is $1,000 and the maximum amount is $10,000. 

If your super balance is less than $1,000 you can withdraw up to your remaining balance after tax.

One withdrawal in any 12-month period.

If you have reached your retirement preservation age plus 39 weeks and you were not gainfully employed when you apply, there are no cashing restrictions.

If your super provider requests evidence, contact the Services Australia to ask them to provide a letter confirming you have received eligible government income support payments continuously for 26 weeks or more.

There are no special tax rates for a super withdrawal because of severe financial hardship. It is paid and taxed as a normal super lump sum. 

If you are under 60 years old, this is generally taxed between 17% and 22%. If you are older than 60 years old, you will not be taxed.

Is it a good idea To Access Retirement Savings?

It is better to leave your retirement savings or super intact until you retire?

If you are facing these sorts of expenses and have no other options, it might be an option to apply for access rather than look for family support. 

The alternative may be to risk losing your home or, worse yet, miss out on life-saving medical treatment.

The time needed to access your retirement savings or super may be too long for you to wait. 

It can take months for the application to be processed.

Providing the required correct information when the application is submitted will avoid unnecessary further delays.

Most people normally use a tax agent to manage your tax affairs, the approval letters received from the ATO may have a different address than that held on your account records by your super fund. 

This may cause delays with the processing by the super fund. 

The addresses do not have to match, so you should check in with your fund to ensure they can satisfactorily identify you.

Getting proper financial advice can be important to ensure you understand the full implications and to ensure you have exhausted or considered all other options first. 

The government is concerned about the recent spike in claims and has announced proposals for changes to tighten some of the early access conditions.

Watch the small print

But what constitutes an expense under one of these categories may be broader than it seems at first.

For example, approvals have been given to access super to pay for one round of IVF treatment. 

Even though this treatment is not considered life-threatening.

It has been approved under mental health provisions with certification from medical practitioners.

Incurring an expense in one of these categories is just the first step. 

You also need to prove that you have no way to pay for the expense except by dipping into your retirement savings.

For example, you can’t access a loan or other savings.

Approval for Access to Retirement Savings in Tough Times

If approved, only the amount needed to meet reasonable unpaid expenses can be released. 

The need for the expenses to be unpaid is important. 

You can’t seek reimbursement for expenses that have already been paid either by you or someone else.

How to apply For Releasing Retirement Savings

Compassionate grounds is not an easy release path to navigate. Applications are submitted to the Australian Taxation Office (ATO). 

Evidence will need to be lodged with your application, including:

• Copies of the unpaid invoices or quotes
• Reports from medical specialists/practitioners
• A letter from your lender or council evidencing that your home is at risk of repossession.

For approval, an authorisation letter will be sent to you and your super fund.

In some cases, you may find that your super fund does not allow a release on compassionate grounds.

Check with your fund first, as you may need to transfer to a new fund that does allow release before lodging an application.

If you are under 60, you may need to pay lump-sum tax on the money you withdraw.

Any taxable component withdrawn is also added to taxable income, which can affect other obligations or entitlements such as child support.

On the Last Note regarding Retirement Savings – Super Access

If you made any personal contributions during the year and you plan to claim a tax deduction you should send a “notice of intent” to the super fund.

Before you submit an application for compassionate grounds or you might not be able to claim the tax deduction.

The situation is changing daily with the government changing the response to adapt. 

Stay across the super changes over the next 2 weeks to ensure that you are informed as to a course of action regarding access to your super fund.

Also, be wary of any person calling you pretending to be the ATO or your super fund to get your personal details.

These organisations NEVER ask for your details over the phone and are wary of similar emails.

Be safe and be careful.

Disclaimer

This is general information only, not to be taken as financial advice

Contact me to answer any queries you may have and we will do our best to help you