When and How to Get Money Out of Super

Australia’s superannuation system serves as a fundamental retirement savings scheme, designed to provide financial support in later life. Employers contribute a portion of an employee’s wages into an investment fund, which then grows over time. This mandatory saving system, coupled with tax concessions, aims to reduce reliance on the publicly funded Age Pension and foster self-funded retirement. While superannuation funds are generally preserved until an individual reaches their preservation age and retires, specific circumstances allow for earlier access to these funds.

Conditions for Accessing Super

Accessing superannuation before retirement is subject to strict conditions, known as ‘conditions of release’. These regulations ensure that funds are primarily used for their intended purpose of retirement savings, while also providing flexibility for unforeseen life events.

One common condition for accessing super is reaching your preservation age and retiring. Preservation age varies depending on your birth date, generally between 55 and 60. Retirement, in this context, means ceasing gainful employment with no intention of becoming gainfully employed again, or reaching the age of 65, at which point you can access your super regardless of your employment status.

Individuals facing a terminal medical condition may also access their super. This condition requires certification from two registered medical practitioners stating that the illness or injury is likely to result in death within 24 months of the certification date. Super funds pay these benefits as a tax-free lump sum if withdrawn within 24 months of certification.

Severe financial hardship provides another pathway for early release.
If you are under your preservation age plus 39 weeks, you must have received eligible government income support payments for a continuous period of 26 weeks and be unable to meet reasonable and immediate family living expenses. The minimum withdrawal is $1,000 and the maximum is $10,000 within any 12-month period.
If you have reached your preservation age plus 39 weeks, you must have received eligible government income support payments for a cumulative period of 39 weeks after reaching your preservation age and be unemployed or employed for less than 10 hours a week when applying, with no restrictions on the withdrawal amount.

Access on compassionate grounds is managed by the Australian Taxation Office (ATO) and covers specific, limited circumstances. These include:

• Paying for medical treatment or transport for yourself or a dependant to treat a life-threatening illness or injury, alleviate acute pain, or address severe mental illness.
• Palliative care for a terminal medical condition.
• Modifying a home or vehicle due to severe disability.
• Preventing foreclosure or forced sale of your home.
• Expenses associated with a dependant’s death, funeral, or burial.

The expense must be unpaid or paid through borrowed money that remains outstanding, and you must demonstrate an inability to pay without accessing super.

Temporary incapacity allows access to super if a physical or mental medical condition temporarily prevents you from working, or requires you to work fewer hours. This access is provided as an income stream rather than a lump sum. For permanent incapacity, also known as Total and Permanent Disability (TPD), you may access your super if a physical or mental condition is likely to prevent you from ever working in a job you are qualified for again, requiring certification by at least two medical practitioners.

Former temporary residents departing Australia may be eligible for a Departing Australia Superannuation Payment (DASP). To qualify, you must:

• Have accumulated super while on an eligible temporary resident visa.
• Have had your visa cease.
• Have left Australia without holding another active Australian visa.
• Not be an Australian or New Zealand citizen or a permanent resident of Australia.

Choosing How to Receive Super Funds

Once an individual meets a condition of release, they have options for how they receive their superannuation benefits. This decision depends on personal circumstances and financial goals, as it impacts ongoing income needs and investment control.

One common choice is a lump sum withdrawal, where the entire accessible amount or a portion of it is paid out as a single payment. This option provides immediate access to funds, which can be useful for large expenses, debt repayment, or specific investments outside of superannuation.

Alternatively, individuals can choose a superannuation income stream, also known as an account-based pension. This involves receiving regular payments from the super fund while the remaining balance stays invested. Income streams are preferred by those seeking to supplement their retirement income and manage their money over a longer period, benefiting from continued investment returns.

A combination of both a lump sum and an income stream is also possible. This hybrid approach allows individuals to take a portion of their super as a lump sum for immediate needs while converting the remainder into an income stream for ongoing support. Factors influencing this decision include the need for immediate capital versus a desire for a consistent income flow, and the comfort level with managing investments within a pension phase account.

Applying for Super Release

The process of applying for super release involves specific steps, primarily interacting with your super fund or the ATO, depending on the condition of release. It is important to gather all necessary documentation.

The first step involves identifying your super fund or funds. Individuals can locate their super accounts by reviewing past superannuation statements or using ATO online services. Once identified, the relevant super fund should be contacted directly to initiate the application process for most conditions of release.

Super funds require specific documentation to support a withdrawal application. This includes proof of identity and bank account details for the payment. Depending on the condition of release, additional evidence will be necessary. For instance, medical certificates are required for terminal illness or incapacity, while Centrelink income statements may be needed for severe financial hardship. Statutory declarations may also be requested in certain situations.

Super funds provide specific application forms for each type of release. These forms will prompt for information related to your eligibility, as well as your chosen payment method (lump sum or income stream). Forms are available on the super fund’s website or can be obtained by contacting them directly. Applications can be submitted through various methods, including online portals, mail, or in person.

For certain conditions, such as compassionate grounds, the application must be made directly to the ATO. This involves logging into your MyGov account, accessing ATO online services, and navigating to the compassionate release of super section. The ATO assesses these applications and, if approved, provides a confirmation letter that then needs to be submitted to your super fund to process the release. After submission, processing times vary, ranging from a few days to several weeks, with follow-up questions from the fund or ATO.

Taxation of Super Benefits

The tax implications of accessing superannuation funds affect the amount received and depend on various factors, including the individual’s age, the type of withdrawal, and the components that make up the superannuation benefit. Super benefits are comprised of a tax-free component and a taxable component, which can be either ‘taxed’ or ‘untaxed’.

For individuals aged 60 and over, superannuation withdrawals, whether taken as a lump sum or an income stream, are tax-free from a taxed super fund. This provides a tax advantage for retirees who have reached this age.

For those under age 60, different tax rules apply. If a lump sum is withdrawn from a taxed fund, the taxable component is subject to tax, while the tax-free component remains untaxed.
Individuals between their preservation age and 59 can withdraw up to a low rate cap tax-free. Amounts exceeding this cap are taxed at 15%.
For those under preservation age, the taxable component of a lump sum withdrawal from a taxed fund is taxed at up to 20%. Withdrawals due to severe financial hardship, if under 60, are taxed as a normal super lump sum.

Departing Australia Superannuation Payments (DASP) for former temporary residents are subject to specific withholding tax rates. These rates vary depending on the type of visa held. For those who held a WHM visa, a higher tax rate, around 65%, can apply to the taxable components. For other temporary visa holders, the DASP ordinary tax rates apply, 38% for a taxed element and 47% for an untaxed element.

You should provide your Tax File Number (TFN) to your super fund. Failing to do so can result in higher tax rates being applied to contributions and withdrawals, reducing the overall benefit received. Super funds issue statements detailing the components of payments and any tax withheld for personal tax reporting.