What happens to your superannuation when you’re not working?

Superannuation generally consists of two phases; accumulation and pension or retirement. When you’re working, your superannuation fund is usually in the accumulation phase. When you stop working, you can choose to convert it to the pension or retirement phase.

You can draw an income from your super to cover all retirement expenses in the pension or retirement phase. However, you can only convert your superannuation to the retirement phase after you’ve reached your preservation age, which is currently 65 years. 

If you become unemployed before the age of 65 and aren’t receiving any employer contributions, you may wonder what happens to your super if you’re unemployed?

What happens to your super if you’re unemployed?

In most cases, there won’t be any change in your super if you’re unemployed. The only change will be not receiving any contributions from your employer to help accumulate a higher balance. Moreover, your salary continuance cover, if you have it, will no longer be valid. 

Additionally, you can’t receive any co-contribution from the Government as being employed or self-employed is one of the main criteria. If you’re part of a defined benefit superannuation scheme, your final benefit could be affected by unemployment. A defined benefit superannuation scheme uses a formula such as multiplying your salary by your years of service to calculate your benefits.

What to do with superannuation when you’re not working? 

 If you want to keep your super growing even if you’re not employed, consider making personal contributions, either regularly or as and when convenient. 

Most financial experts recommend you make a contribution equal to a minimum of 12 per cent of your last drawn salary each year. Doing this will help ensure you have sufficient funds for retirement. But, if you can’t afford that, it’s better to make smaller contributions than nothing. To make these contributions, you can use another income source, including investment dividends, an inheritance, a gift, or even income from a job where you aren’t eligible for super contributions. 

You should keep in mind the contribution caps before making any payments while making super contributions. You should determine if there are any contribution restrictions due to your age. 

Can your spouse make contributions for you?

In most cases, your spouse can make contributions into your super account if you’re unemployed. Your spouse might even receive a $540 tax rebate. Alternatively, your spouse may opt to split their employer contributions into your account at the end of the fiscal year. 

Can you access your super early if you’re unemployed? 

You can only access the funds in your super after retiring; however, you may be allowed to withdraw funds from your superannuation if you’re unemployed under the following circumstances: 

1. COVID-19 early access scheme
Due to the on-going COVID-19 pandemic, the Federal and State Government took multiple measures to help businesses and individuals overcome these challenging times, including accessing super funds.

2. Severe financial hardship
If you’re facing severe financial hardship, you could choose to apply for early release of part of your super. For example, if you’re unable to meet immediate family expenses, you can apply for an early release of your super.

3. Compassionate Grounds
Very rarely, you might be able to gain access to your super on compassionate grounds to cover your or your dependents costs for the following: 

• • Palliative care or funeral expenses
  • Home or vehicle modifications
  • Mortgage payments
  • Medical treatment and transport

4. Temporary residents departing Australia
If you’re a temporary resident in Australia, you might have to depart the country when unemployed. In such cases, you can make a claim to release your superannuation before leaving. This super release is known as the Departing Australia Superannuation Payment (DASP). You need to claim this within six months of your departure, or the expiry or cancellation of your temporary visa. 

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