SUPERANNUATION AND SEVERE FINANCIAL HARDSHIP
– By Andrew Carpenter –
Sometimes, when life gives you lemons, it’s difficult to see how you can make lemonade. For example, if you are experiencing severe financial hardship, you can be so flat out trying to put food on the table that you have no idea how you’ll pay the next bill. And if you’ve been retrenched, you may be so worried about finding a new job that you missed making a mortgage repayment.
Thankfully, there is a safety net of sorts. It’s a scheme that allows some superannuation funds to authorise the early release of superannuation and it could be your saving grace in tough financial times.
How does it work?
You may be eligible for the early release of some of your superannuation if you are experiencing:
- Severe financial hardship.
- Terminal illness.
Superannuation also can be released on other compassionate grounds.
The aim of releasing some of the funds is to assist you with your immediate and reasonable unpaid expenses. That’s key – the expenses must be unpaid. If you’ve borrowed money to pay them, you won’t be eligible.
Because compulsory superannuation is a forced retirement savings scheme, the general rule is that you can’t access your money until you’ve retired (that is, reached your preservation age). But if life gets hard, you may have no choice but to apply for early access to your existing superannuation to meet your financial obligations.
For example, let’s say that you’ve been retrenched and have spent all of your payout on living expenses. You’re now receiving income support payments from Centrelink but those payments don’t stretch to meeting your mortgage repayments. The bank is now demanding that you catch up on missed payments.
What do you do?
You may be able to apply to your super fund for early release of part of your superannuation and hopefully the payment would tide you over for a few months, to buy you more time to look for a job and to figure out your next move.
Things to consider
Applying for early release of superannuation is not a decision that you should make lightly and you should carefully consider the impact before you decide to proceed. For example:
- You must have been receiving Centrelink income support payments for a minimum of 26 weeks before you can claim a severe financial hardship payment from your superannuation fund.
- Most payments, if approved, are for a maximum of $10,000. Occasionally, a fund will approve a higher amount.
- The payment will reduce the amount you have in superannuation, meaning that you will have less money for retirement.
- You will have to pay tax on the payment.
- The payment may affect your eligibility for family assistance or other Centrelink payments. It may also affect your child support assessment because the payment will effectively increase your income for that financial year.
If you need to meet expenses for your spouse, domestic partner or a dependent child (including an adopted child or step child), that may be another ground upon which you can claim early release of your superannuation.
In extreme circumstances, the Government may approve one-off payments if the early release application is rejected.
What does it mean?
In times of hardship, it’s really important to understand your rights so that you can properly assess your options. Financial advice can help, but legal advice is also valuable.
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