By Monica Rule

During my time as an employee of the Australian Taxation Office, I came across many incidents where Self Managed Superannuation Fund (SMSF) members accessed their superannuation illegally when they were enduring financial hardship. As SMSFs are established by its members and members control their SMSF’s bank account, the temptation is there for members to dig into their superannuation when they are unable to make mortgage repayments or provide food and necessities for their family.

What I discovered, during my interactions with these SMSF members, is that they could have legally accessed their superannuation if they knew the requirements of the superannuation law. 

You see, although the objective of superannuation is to provide members with retirement income, the law does recognise that certain exceptional circumstances may justify the early release of superannuation to members. Members may be able to access their superannuation under severe financial hardship grounds or compassionate grounds. Members also need to be aware that although it may be possible to access their superannuation under the superannuation law, there may be restrictions under the rules of their SMSF trust deed. Members need to check the types of benefits they can access from their SMSF under their SMSF’s trust deed first.

Severe financial hardship grounds

To access superannuation under severe financial hardship grounds, members need to apply directly to their SMSF trustee. Different conditions of release apply, depending on whether the member is under or over the preservation age. 

If the member is under preservation age, then they must prove to their SMSF trustee that they:

• have been receiving Commonwealth income support payments continuously for 26 weeks (Commonwealth income support payments includes NewStart allowance, disability support, parenting payment, carer’s payment, and widow allowance, but it excludes Austudy and Youth Allowance);
• were still in receipt of those payments at the date of the written evidence (which must not be more than 21 days prior to the application) provided in support of the application; and
• are unable to meet reasonable and immediate family living expenses.

If these requirements are satisfied, the trustee may release a single lump sum of no more than $10,000 in a 12 month period. 

If the member has reached their preservation age, then they must prove to their trustee that they:

• have been receiving Commonwealth income support payments for a cumulative period of 39 weeks after they reached their preservation age; and
• were not gainfully employed on a full-time or part-time basis at the time of applying for their benefit. 

The member is able to access their entire superannuation savings if the trustee is satisfied that the member meets the above requirements.

If the member is unable to access their superannuation under severe financial hardship grounds, then they could consider applying to the Department of Human Services (DHS) for early release of their superannuation under “compassionate” grounds.

Compassionate grounds

Situations where a member may qualify under compassionate grounds are where:

• The member is unable to pay for medical treatment for a life threatening illness or injury; acute or chronic pain; acute or chronic mental illness. The treatment must not be readily available through the public health system and must not be covered by private health insurance or by workers compensation. DHS may allow access to superannuation to cover reasonable costs.

• The member is unable to pay for costs related to transporting (by land, water or air) themselves or their dependants to or from medical treatment where two medical practitioners certify that the treatment is necessary to treat a life threatening illness or injury; alleviate acute or chronic physical pain; alleviate acute or chronic mental condition. DHS may allow access to superannuation to cover reasonable costs.

• The member is unable to meet mortgage repayments and the lender has threatened to sell the member’s residential home. Access to superannuation is restricted to a single lump sum not exceeding 3 months of repayments and 12 months of interest on the balance of the loan, in each 12 month period. DHS will only allow access to what the lender requires and therefore it may be less than the maximum amount payable. DHS will also require confirmation from the lender that they will accept the amount available in the member’s superannuation to stop the sale of the member’s home.

• Due to a severe disability, the member needs to modify their home or car, or to buy disability aids. If the member rents their home, the landlord must agree in writing to the modifications.

• The member is unable to pay disability costs for a dependant (e.g. partner, child or other dependant). DHS may allow access to superannuation to cover reasonable costs.

• The member is unable to pay for palliative care for a dependant (e.g. partner, child or other dependant) who is suffering a terminal illness. DHS may allow access to superannuation to cover reasonable costs.

• The member must pay for a funeral service and the headstone for a partner, child or other dependant. Access to superannuation will not include the cost of an event such as a wake.

Please be aware that the early release of superannuation is only for unpaid costs. Members cannot get access to super to pay for costs already paid even if they use a loan, a credit card or money from family or friends. 

Members also need to be aware that any early release of superannuation money to them could affect their entitlement to Government pensions and allowances. There may also be tax payable on their superannuation lump sum benefit based on their age and the components of the lump sum.

For Gold and Platinum members, please read on for other circumstances where members may access their superannuation.

Monica Rule is an SMSF Specialist and she is running SMSF seminars. For more information visit www.monicarule.com.au

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. The statements and opinions are the expression of the author, not Law Central, and have not been checked for their accuracy, completeness or changes in the law. Law Central recommends you seek professional advice before taking any action based on the content of this Bulletin.

Related documents:

• Pension Pack for Self Managed Super
• Self Managed Superannuation Fund
• SMSF - Deed Update
• Product Disclosure Statement (Pension only)

Related webinars:

• Webinar - Time To Address The SMSF Sleeper - Estate Planning Within The Fund
• Webinar Recording - Estate Planning Basics For Professional Advisers
• Webinar Recording - Pitfalls That SMSF Trustees Should Avoid
• Webinar Recording - Understanding The 2017 Superannuation Changes