For many of us, superannuation is more than just a retirement fund; it’s a lifeline, a nest egg, and a symbol of years of hard work. But what happens to this hard-earned money if you face financial difficulties and consider filing for bankruptcy? Can creditors claim your super?
Here we explain how bankruptcy could impact your super, helping you understand your financial situation better.
Is superannuation protected from creditors?
Superannuation, for the most part, offers a safety net against debt collectors. This means that even if you declare bankruptcy, your superannuation remains untouched. If you receive any lump sum payments from a regulated superannuation scheme after the date of your bankruptcy, these amounts are also safeguarded.
However, there are exceptions.
When can debt collectors take your super?
If your fund isn’t regulated
Your superannuation is not protected if it isn’t in a regulated fund, approved deposit fund (ADF), or an exempt public sector superannuation scheme (EPSSS).
Regulated Superannuation Funds
The Superannuation Industry (Supervision) Act 1993 (SIS Act) governs a regulated superannuation fund. These funds are subject to strict rules and regulations set out by the Australian Prudential Regulation Authority (APRA) to protect your rights as a member and ensure the fund’s assets are secure and used only for retirement benefits. Most superannuation funds in Australia, including retail, industry, and corporate funds, fall under this category.
Approved Deposit Funds (ADF)
An ADF is designed to accept and hold rollovers from other super funds. If you received a lump sum payment due to changing jobs but are still deciding on a long-term superannuation strategy, an ADF is where you can put your money. ADFs are also regulated under the SIS Act and are meant to be a temporary holding place for super benefits. They don’t accept contributions from employers or members, only rollovers.
Exempt Public Sector Superannuation Schemes (EPSSS)
EPSSS is a superannuation fund for federal or state government employees. These funds are called “exempt” because they are not subject to the same regulatory provisions of the SIS Act that apply to other superannuation entities. Instead, they are governed by specific state or federal legislation. Despite this exemption, they still offer a high level of protection and benefits to their members, often comparable to regulated funds.
To know the type you have, ask your super fund provider.
If you withdrew from your super before bankruptcy
If you take money out of your super before bankruptcy, creditors can access it. Once outside the superannuation structure’s protective umbrella, these funds are considered part of your accessible assets.
Also, if it appears you’ve accessed your super with the intention of shielding it from creditors, this could be challenged by the bankruptcy trustee, leading to further complications.
If you purchase an asset with your super fund before bankruptcy
If you buy assets like property or vehicles with your super before going bankrupt, creditors can access them. This means the bankruptcy trustee can liquidate these assets to repay your outstanding debts. Also, if these purchases seem like you’re trying to hide money from creditors, they’ll be scrutinised.
If there are suspicious contributions
Making unusually large contributions to your superannuation, incredibly close to declaring bankruptcy, can be a red flag. If the bankruptcy trustee believes you made these contributions to defeat creditors, they can be considered recoverable.
Similarly, if third parties, like employers, make contributions on your behalf to divert funds that would otherwise be paid directly to you, they might be scrutinised. If a ‘scheme’ is identified between this third party and you to defeat creditors, these contributions can be clawed back by the bankruptcy trustee.
If you receive the fund as a pension or annuity
While lump-sum amounts from superannuation are often classified as ‘exempt divisible property’, pension or annuity is considered income. As such, they are subject to limited income protection based on the number of dependants. This is the Actual Income Threshold Amount (AITA) as of September 2023:
| Number of dependants | Income |
| 0 | $68,768.70 |
| 1 | $81,147.07 |
| 2 | $87,336.25 |
| 3 | $90,774.68 |
| 4 | $92,150.06 |
| More than 4 | $93,525.43 |
If your income exceeds these limits, the trustee can claim 50% of the excess.
How to protect your super from creditors
Know the rules
Be familiar with the superannuation and bankruptcy laws. This can help you understand what is protected and what isn’t.
Also, laws and regulations change, so keep informed about any superannuation and bankruptcy laws updates.
Avoid suspicious or excessive contributions to super funds
Stick to making regular contributions consistent with your employment income and employment type. Avoid making substantial contributions, especially if you foresee financial difficulties, as these can be seen as an attempt to defeat creditors.
Avoid early withdrawal
Resist the temptation to withdraw your superannuation early unless you meet a specific condition of release. Any funds withdrawn from your super become part of your assessable assets and could be claimed by creditors if you declare bankruptcy soon after.
Seek legal advice
If you believe you might be at risk of declaring bankruptcy or if creditors are pressing, consult a legal professional. They can guide you on how best to protect your assets.
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