Superannuation cannot generally be accessed before a person reaches their preservation age. In some limited circumstances, the Early Release of Superannuation Benefits on Specified Compassionate Grounds Program allows eligible people to draw on their superannuation benefits in a time of need. These include:
- Severe financial hardship
- Compassionate grounds
- Terminal illness
- Temporary or permanent incapacity
An applicant may be considered to be in severe financial hardship if they have been receiving an income support payment for a certain period of time before application. Applications for early release of superannuation benefits on the grounds of severe financial hardship can be made directly to a superannuation fund, and must be supported by a letter from a Commonwealth Department or agency to confirm that the applicant meets the specific criteria for the early release of funds. The decision to release benefits rests solely with the superannuation fund and is subject to other criteria being met.
The Early Release of Superannuation program benefits many Australians who are experiencing financial difficulties. The table below shows the approvals and amounts from superannuation benefits released on compassionate grounds from 2010 until 2013.
| 2010-2011 | 2011-2012 | 2012-2013 | % Change 1 | |
|---|---|---|---|---|
| Applications received | 15,795 | 17,391 | 18,024 | +3.6 |
| Applications approved in full or in part | 10,141 | 11,346 | 11,510 | +1.4 |
| Amount approved for release | $122,975,798 | $153,674,964 | $145,517,285 | -5.3 |
| Average amount released per approval | $12,127 | $13,544 | $12,643 | -6.7 |
1 Percentage change between 2011–12 and 2012–13.
Table Source – Department of Human Services Annual Report 2012 -2013
Accessing Superannuation – Treatment of property under the Bankruptcy Act (“The Act”)
When money is taken out of a superannuation account before bankruptcy, it loses its protection and becomes simply money or property, which can be claimed by the trustee.
For example, if a debtor withdraws $10,000 from their superannuation fund on 1 April and goes bankrupt on 1 May and still has $8000 of the superannuation in their bank account, the $8000 will vest in the bankruptcy trustee and will no longer be available to the bankrupt.
When is your Superannuation protected?
Superannuation guarantee contributions (which are the compulsory amounts that employers have to pay to superannuation funds on behalf of employees) will be protected because they aren’t made with the intention to defeat creditors (and are instead made because separate legislation makes them compulsory). If a debtor is granted early access to their super, the payments received on or after the date of bankruptcy will be protected from creditors/the bankruptcy trustee.
Any assets purchased wholly or substantially with protected money are protected assets. This means that the bankruptcy trustee won’t be able to realise such property, although the bankrupt may be asked to provide information and answer questions to assist the trustee to determine whether the property is protected.
SMSF vs Non SMSF
A bankrupt is prohibited from acting as a director of a corporate trustee or remaining as the individual trustee of a SMSF. It is necessary to appoint a replacement within a 6 month period from their date of bankruptcy. Failure to comply could result in fines, or the fund could convert to a registered superannuation fund (RSE) licensee and the SMSF converts to a small APRA fund.
Seeking advice for the early release of Superannuation
It is important to make sure accessing superannuation benefits is the right financial option for your clients. The amount of superannuation received may be included in your client’s taxable income, which can impact upon their financial situation. We recommend seeking independent financial advice before making an application for the early release of superannuation.
If you or your clients have any questions concerning accessing superannuation funds before the preservation age for financial hardship, or how to best protect their superannuation funds if they are contemplating bankruptcy, please contact one of our expert advisors on 1800 246 801. For further information, please contact the Department of Human Services or AFSA.