Published on 2 Oct, 2023

Understanding how to withdraw super

Written by:
Thomas S Phabmixay
General Manager

Page Contents

What is superannuation?

Superannuation, commonly referred to as ‘super,’ is a long-term investment designed to provide financial stability during your retirement years. It functions by pooling funds into a super account, which is invested across a variety of assets to maximise your retirement savings. Generally, you are allowed to withdraw your super only when you’ve reached your preservation age and are transitioning into retirement. The preservation age depends on your date of birth, and it’s crucial to note that very limited circumstances allow for early access to your super.

If you meet reasonable eligibility criteria, such as experiencing severe financial hardship or special circumstances like severe disability, you may be able to access your super early. In these cases, you will need to submit a withdrawal form to your superannuation fund. Some people opt for lump sum withdrawals, while others prefer establishing a retirement income account to receive regular income payments.

The Australian Taxation Office (ATO) offers tax-free investment earnings on these accounts to a certain extent, although the marginal tax rate can apply in some situations. There are also account-based pension options that convert your superfund into a retirement income stream, ensuring you have regular pay-outs to cover your living expenses. All of these arrangements should ideally be in line with the guidelines specified by the ATO and should align with your own financial needs and plans.

Using Super to pay off debt

Under specific conditions, like facing financial hardship or for medical reasons, you may be eligible to access your super early. This could be through lump sum withdrawals or by drawing from your retirement income account. This will depend on your unique situation and the rules of your super fund.

If you were a temporary worker in Australia and have now departed, there’s a possibility you could access your super ahead of time.

It’s crucial to understand that tapping into your super before your designated time might adversely impact your retirement income. Therefore, it should be viewed as a last-resort measure. Prior to making such a significant choice, consulting with a seasoned financial advisor or attorney is highly advised.

A growing number of fraudulent schemes have been targeting Australians, promising early access to super funds. Always ensure you’re dealing with certified professionals and remain cautious of those proposing such services.

First Home Super Saver Scheme

The First Home Super Saver Scheme is an initiative that facilitates early access to your super to support first home buyers. Through this scheme, individuals can use their voluntary contributions made to their super account since 1 July 2017, which includes both pre-tax and post-tax deposits, to save for their initial residence.

To take advantage of this scheme, individuals must satisfy certain eligibility criteria.

From any given financial year, you’re permitted to apply for the release of up to $15,000 from your voluntary contributions towards your home. The cumulative cap across all years stands at $50,000. Moreover, when accessing your super early for this purpose, the Australian Taxation Office ensures that you also receive the earnings related to those contributions.

Always ensure that before making super withdrawals, especially for large purchases like a home, you understand the nuances and potential future implications for your retirement savings and income stream.

A chart listing eligibility for the FHSS scheme. Criteria include being 18 or older, a first-time home buyer in Australia, intention to occupy the home, no previous FHSS requests, and no citisenship requirements. Eligibility is assessed individually

Criteria for early access to your super

In most cases, superfunds are designed to be a long-term investment for retirement, meaning you usually can’t withdraw your super until you’ve reached your preservation age and have ceased gainful employment. However, there are very limited circumstances that allow for early access to your super.

What determines your preservation ages

Your preservation age is a crucial factor that dictates when you’re eligible to access your super. Set by the government, this age is currently undergoing a gradual increase from 55 to 60 years. The intention behind this is to prompt individuals to grow their super balances, given the trend toward longer retirement periods. This adjustment to the preservation age is particularly noteworthy because, generally, early access to your super is only permitted in special circumstances.

By knowing and understanding the rules and your preservation age, you can better plan for both your retirement and any immediate financial needs you may face.

A chart displaying the government-set preservation age for accessing superannuation, ranging from 55 to 60. The age is being gradually increased to encourage more retirement savings. Access is generally restricted until reaching the preservation age, barring special circumstances.

Guidelines for super withdrawals due to severe financial hardship

Contrary to what some might assume, applications for withdrawing your super under conditions of severe financial hardship aren’t managed by the Australian Taxation Office (ATO). Instead, you’ll need to get in touch with your superannuation fund provider for this request.

To qualify for this type of withdrawal, you must meet specific eligibility criteria. This includes having received eligible government income support for 26 weeks consecutively and facing difficulty in covering immediate and reasonable living expenses for yourself and your family.

The withdrawal limits are set between a minimum of $1,000 and a maximum of $10,000. Furthermore, only one withdrawal is allowed within a 12-month timeframe. However, if you’ve reached your preservation age plus 39 weeks and were not in gainful employment at the time of your application, there aren’t any cashing restrictions.

Your super provider might request evidence to validate your claim. In such cases, you should reach out to Services Australia to obtain a letter confirming your eligibility. Any funds withdrawn under conditions of severe financial hardship are taxed as a regular super lump sum. There aren’t any special tax rates for these withdrawals. For individuals below 60 years of age, the taxation rate on these withdrawals typically ranges between 17% and 22%. If you are 60 years or older, the withdrawals from your super are generally tax-free.

Chart outlining the guidelines for withdrawing super due to severe financial hardship in Australia. Details criteria, withdrawal limits, tax implications, and the managing entity.

Guidelines for withdrawing your super due to a terminal medical condition

If you’re diagnosed with a condition considered terminal from a medical standpoint, there’s an opportunity for you to access your super fund. Such a terminal medical condition is characterised by an ailment or injury that, based on the assessment of two registered medical practitioners (with one being a specialist in the area of the condition), is expected to lead to death within a 24-month timeframe from the date the condition was certified.

For accessing your super under these circumstances, directly reach out to your superfund provider. Withdrawals for terminal medical conditions need to be in the form of a lump sum. Moreover, if you choose to withdraw within the 24 months post-certification, the amount is tax-free.

It’s worth noting that if your current superannuation fund doesn’t permit withdrawals for terminal medical conditions, transferring your super to another fund that does may be an option. If the ATO holds your super and you’re experiencing a terminal medical condition, you can have your provider claim it for you or make a direct claim to the ATO.

A chart outlining the steps and conditions for accessing superannuation due to a terminal medical condition. Covers eligibility based on a terminal diagnosis, tax-free lump sum withdrawal within 24 months of certification, and alternatives for inaccessible super funds.

Guidelines for compassionate grounds super withdrawals

Under special circumstances, you could be eligible to access a portion of your super on compassionate grounds. Such situations can range from needing funds for specific expenses like medical treatments and associated transportation costs, for you or a dependent, to palliative care.

You could also qualify if you’re facing immediate home loan payments or council rates that could lead to the loss of your home. Additional scenarios include making necessary accommodations for a disability for yourself or a dependent, as well as covering costs tied to the passing, funeral, or burial of a dependent.

Staying alert to scams and unethical schemes

Stay vigilant for potential scams or deceptive schemes involving individuals who might impersonate being associated with the Australian Taxation Office (ATO) or trustworthy organisations like your superfund. Their objective may be to illicitly acquire your personal information or money.

Also, exercise caution if someone approaches you with offers for services, such as early access to your super, in exchange for a fee. Often, such services may be accessible without any charge.

Should you encounter unsolicited communications, whether via phone calls, text messages, or emails, promising assistance for early release of your super, refrain from disclosing any personal details or clicking on any provided links.

Considerations for accessing your super early

Before attempting to access your super early, it’s crucial to understand the potential impacts on your retirement income account, the tax implications, and insurance coverage through your superfund. Accessing your super before your preservation age, under very limited circumstances, might lead to adverse tax consequences. Check the Australian Taxation Office (ATO) guidelines and ensure that you meet the eligibility criteria to avoid tax liabilities.

Risks of illegal early super access

Beware of entities promising early access to your super by transferring your super balance to a Self-Managed Superannuation Fund (SMSF). Such schemes can be unlawful. Severe penalties can apply if you participate in them, even if they suggest it’s based on compassionate grounds or severe financial hardship.

Self Managed Super Fund (SMSF) considerations

Determining if an SMSF is suitable for you requires careful consideration. Consult a licensed financial advisor, especially since our services are primarily focused on taxation advice. With experience ranging over two decades, we have assisted numerous SMSF clients with our SMSF accounting services. Our comprehensive approach to the SMSF setup process is enriched by our collaborations with various financial advisory firms and a nationally acclaimed auditing firm.

For inquiries about accessing your super when the fund transitions to an account-based pension, if your retirement income stream from the super will sufficiently cover living expenses, or if you’re seeking general super-related guidance, our network of financial professionals is ready to assist.

Next Step is to Contact TMS Financials

TMS Financials provides you with a team of experienced professionals that help you achieve your financial goals through smart tax structures and strategic financial structuring. We’re a one-stop shop for all financial needs and pride ourselves on building strong partnerships with our clients.

Book a free financial health review to see the difference we can make in your financial future.

Book a free accountant consultation with TMS CPA Accountants your specialists in Sydney Australia.

Disclaimer

This outline is for general information only and not as legal, tax or accounting advice. It may not be accurate, complete or current. It is not official and not from a government institution. Always consult a qualified professional for specific advice tailored to your unique circumstances.