What does illegal early release of super mean?

Your superannuation fund is meant to fund your retirement. To ensure you don’t access the money illegally, you should find out when you can withdraw from it. 

If you were born before 1 July 1960, you’d reach your preservation age at 55. Depending on your circumstances, you may not have retired at that age or be quite ready to retire. You can, however, begin to access your super through a transition-to-retirement income stream. The preservation age for the release of super goes up by a year for every birth year between 1 July 1960 and 1 July 1964. If you were born after 1 July 1964, the preservation age is 60.

If you withdraw your super before reaching the preservation age, whether directly or with someone’s help, it’ll be considered an illegal release of super. You’ll then pay tax at your marginal rate on the withdrawal, whether or not you owe taxes on it, and pay interest on the amount. If you’re receiving any Centrelink payments, you could also lose access to these benefits.

Anyone offering to help you withdraw super illegally, such as someone promoting an illegal super release scheme, can be prosecuted under the Superannuation Industry (Supervision) Act. These promoters may suggest that you transfer or rollover your super to their self-managed super fund (SMSF). This is so that you can withdraw it without meeting the conditions of release for your standard super fund. These people or companies could face several punishments, including fines running into hundreds of thousands of dollars and imprisonment. They may even be banned from managing any super fund in the future. If you are contacted by such a person or company, you should not share any personal or identifying information and report the incident to the ATO.

The ATO allows early release of super in very strict circumstances, including financial hardship or on compassionate grounds. These withdrawals involve strict conditions. 

If you’re facing financial difficulties, you can only access your super early if you’ve received an eligible government payment for at least six months (26 weeks) and cannot afford your living expenses. You’ll have to apply for this early release through your super fund, and you can withdraw at most $10,000 a year or the funds you need for daily expenses. However, you can only make one withdrawal in any 12-month period. Likewise, if you’ve missed mortgage repayments and the lender has sent you a foreclosure notice, you may withdraw super funds to keep up with the mortgage.

The other allowable reason for early release of super is if you become severely ill, partially incapacitated or fully incapacitated and are unable to work. To process a withdrawal on these medical grounds, you may need to contact Centrelink and your super fund and submit the required documentation to support your claim. If you’re suffering from a terminal illness, for instance, you need to submit a certificate signed by a specialist in the relevant field of medicine and another doctor stating that you may not live for more than two years from the date of the certificate. In such cases, you may use your super funds to modify your home and car or other transport to accommodate your illness or disability. 

There are some other compassionate grounds that you may access your super early. These include medical treatments, palliative care, accommodating a disability and the expenses relating to death, a funeral or burial for you or a dependent. Be sure to check with your super fund and the ATO about the process for accessing super early that relates to your specific circumstances.