Hatching your nest egg early
Written on the 2 March 2020 by Arrow
The summer bushfires have touched the lives of all Australians. For individuals who lost homes, businesses or livelihoods, the financial hardship lingers, prompting many to ask whether they can dip into their super to tide them over.
The short answer is generally no. According to the Australian Taxation Office (ATO), there are very limited circumstances where you can access your super early, mostly related to specific medical conditions or severe financial hardship.
Before we discuss these special circumstances, let's look at when you can legally access your super under normal conditions.
Accessing super before age 60
The first hurdle is reaching what is referred to as your preservation age. Once you reach your preservation age between age 55 and 60 depending on the year you were born and retire, you can access your super in a lump sum or as a pension. But as a disincentive to early retirement, there may be tax to pay.
Even if you keep working, once you reach preservation age you can access a portion of your super by starting a transition to retirement pension. This can be an effective way to scale back your working hours while supplementing your reduced wages with income from super.
However, you can only access 10 per cent of your pension account each year. You pay tax on the taxable portion of pension income at your marginal rate less a 15 per cent offset. Earnings on assets supporting your pension are taxed at the normal super rate of 15 per cent.
Accessing super from age 60
Anyone who has suffered financial hardship as a result of the bushfires and has already reached their preservation age could dip into their super under the normal rules, provided they retire or start a transition to retirement pension.
But what about people who don't qualify under the normal rules? That's where the early access rules governing severe financial hardship or compassionate grounds come in.
Severe financial hardship
You can gain access to at least part of your super as a lump sum if:
You have been receiving certain government income support payments continuously for at least 26 weeks, and
You are unable to meet your reasonable and immediate family living expenses.
If you have reached your preservation age plus 39 weeks, you may be able to access your entire super balance as a lump sum or pension (as opposed to 10 per cent of your balance each year with a transition to retirement pension) if:
You are employed for less than 10 hours a week, and
You have received government income support payments for at least 39 weeks since reaching preservation age.
Medical treatment or transport for you or one of your dependents, but only for a chronic or life-threatening illness not available through the public health system,
To prevent foreclosure on your mortgage if your lender threatens to repossess or sell your home.
If you would like to discuss when and how you can access your super, under the normal rules or due to special circumstances, please give us a call.