Financial Hardship: Super, Can You Access it?

In life, we often find ourselves facing unexpected financial challenges.

Whether it's a medical emergency, a sudden job loss, or mounting debts, these situations can leave us feeling overwhelmed and uncertain about our financial future.

During these stressful times, exploring all available avenues to secure your financial stability is essential. One such option that may be available to you is accessing your superannuation.

But on what conditions can you access your super early? And is dipping into it early a good idea?

Financial Hardship and Super

Superannuation, aka super, is a long-term savings plan designed to provide financial support during retirement.

While it's typically intended for your golden years, there are circumstances when accessing your super early becomes a viable solution and is possible as follows:

• On compassionate grounds, for example, if you need to pay for medical treatment, palliative care, funeral costs, or prevent foreclosure or forced sale of your home
• If you’re experiencing severe financial hardship

Importantly, financial hardship is more than being a bit strapped for cash. It’s about being in a situation where you’re finding it challenging to meet your basic financial obligations and maintain a reasonable standard of living.

Determining if You’re in Financial Hardship

4 signs you may be experiencing financial hardship:

1. You’re struggling to cover essential living expenses such as housing, food, utilities, healthcare and transport.
2. You’ve accumulated significant debts, including credit card debt, loans, or overdue bills, which you’re struggling to repay.
3. You’re struggling to get credit or loans from traditional financial institutions such as banks due to a bad credit history.
4. You’ve been forced to sell assets, eat into any savings or are considering accessing long-term savings, such as super.

If you are experiencing financial hardship, you’re likely to be feeling stressed and anxious. You may also be feeling a sense of hopelessness.

These emotions are only made worse by the fact your quality of life has dropped, as you’re unable to go out as much as you did and/or plan for the future.

Accessing Super When in Financial Hardship

If you believe you are in severe financial strife, contact your superannuation fund provider to request early release due to financial hardship. Access to super on the grounds of financial hardship isn’t administered by the Australian Taxation Office (ATO).

Your super provider may ask you to give them evidence of your hardship. You can ask Services Australia for a letter confirming you have received eligible government income support payments for the relevant period.

However, super funds consider many factors, so they may not allow you to access funds even if you meet the income support requirements.

Are You Eligible?

You must meet certain eligibility criteria to withdraw super due to financial hardship. Eligibility depends on your age in relation to your preservation age. (Your preservation age is the age at which you can access super if you’re retired.)

• If you’re under your preservation age plus 39 weeks - You need to meet these two conditions:
1. You’ve received income support payments for an ongoing period of 26 weeks
2. You’re not able to meet reasonable and immediate family living expenses

The smallest amount you can withdraw under preservation age is $1,000 and the largest is $10,000. If your super balance is less than $1,000, you can withdraw up to your remaining balance after tax.

• If you’ve reached your preservation age plus 39 weeks – You need to meet these two conditions:
1. You received income support for a continuous period of 39 weeks after you reached the preservation age
2. You weren’t employed or self-employed for gain at the time you applied

There are no limits on how much you can withdraw if you’re over preservation age if you meet these conditions.

Consequences of Accessing Super Early

While you may be eligible to withdraw super funds early to deal with financial hardship, it doesn’t mean you necessarily should.

Super may seem like a better idea than a high-interest loan, but you could face several unwanted consequences both in the long and immediate term, including:

1. Less money for retirement - This can lead to having a reduced standard of living once you reach retirement age, especially if you don’t have alternative savings you can tap into
2. You’ll be taxed on what you withdraw (if you’re under 60) - You can expect a tax rate ranging from 17% to 22% on your withdrawal amount. You could face tax if you’re over 60 if there’s an untaxed element in the lump sum
3. Loss of compound interest - By withdrawing super early due to financial hardship, you reduce the amount your money could grow over time
4. Loss of government assistance - This includes Age Pension or social security benefits as these programs are income and asset-tested
5. Financial penalties - If you decide to withdraw super funds despite being ineligible, you could face financial penalties or be made to pay back the money you took out incorrectly
6. Possible additional fees - Some super funds may charge fees or admin costs for processing early withdrawals. Be sure to check with your super fund about any associated fees
7. Could affect insurances - If you withdraw too much, you may lose certain benefits attached to your super, including life insurance and disability cover.

Don’t Make a Super Quick Decision

While early access to your super during financial hardship can provide immediate relief, it comes with a complex web of considerations and potential consequences.

Make sure you carefully evaluate your specific circumstances, seek advice from financial specialists, and explore alternative solutions, such as government and not-for-profit assistance, debt consolidation and debt agreements (informal or Part IX (9) Debt Agreement), before making a decision that could impact your financial future.

If you’re experiencing financial hardship and/or considering drawing from your super, get in touch with our team of debt solution specialists today on 1800 534 534 for professional, non-judgemental support and advice. Equally, you can complete a FREE Online Debt Assessment in just 5 minutes to understand your options better.