Withdrawing super early is enticing when facing financial hardship because—let’s face it—life doesn’t go as planned. Financial struggles hit at the worst possible time, and it can be overwhelming.

But before deciding, understand the eligibility criteria and potential long-term impacts. Accessing your super early can provide much-needed relief, but it also means dipping into the savings meant for your future retirement.

So, who can apply for early super access? Let’s break down the eligibility requirements and what you need to know before taking this step.

Who is eligible for early super access?

When we think of superannuation, we think of savings that can only be accessed when we retire, or reach preservation age. And while this is generally the case, there are certain circumstances where you can access your super earlier.

To safeguard Australians who may be experiencing severe financial difficulties, the ATO will allow you to withdraw some of your super to ease the burden of financial hardship. But only if you satisfy a set of criteria that assesses your eligibility. If you are deemed eligible, the usual conditions for super release may be waived.

What is financial hardship?

For the ATO to consider someone in financial hardship, it’s not as simple as having overdue bills or worrying about paying rent this month, (if this is the case you may be better off speaking to a debt relief expert who can help tailor a solution for you).

To be legally considered as someone who is experiencing severe financial hardship, the government will assess you against the following criteria:

• You have received government welfare benefits for at least 26 consecutive weeks (apart from ABSTUDY, Austudy or Youth Allowance)
• You’re still receiving those payments when you apply for early release
• You’re unable to pay for reasonable and immediate family living expenses such as overdue mortgage repayments, rental arrears, car repairs and urgent medical bills

How much can I withdraw from my super early?

If you satisfy the conditions for early release of super due to severe financial hardship, there are limits on how much you can withdraw. The minimum amount you can access is $1000, and the maximum is $10,000.

However, there are certain exceptions to this rule. If you have reached your preservation age and have been receiving DHS or Centrelink payments for 39 consecutive weeks and don’t have full or part-time employment, the amount of early super that you can withdraw is unlimited.

What is the penalty for accessing my super early?

While there are no direct penalties for withdrawing super early, it’s important to remember that the amount you take out will be considered an income stream and taxed accordingly. It can also affect whether or not you’re eligible for any welfare benefits, so it’s always best to speak to a financial advisor or debt relief professional to discuss how this will affect you before making a decision.

If you’re over 60, your withdrawal will be tax-free.

What happens if you withdraw your super early?

Before proceeding with an early super withdrawal, consider the following factors carefully and seek professional advice to ensure it’s the best decision for your long-term financial well-being.

Less Money Available in Retirement

When you withdraw your super early, you’re reducing the funds available for your retirement. This means that while it may help during a period of financial hardship, you could end up with less financial security later in life.

Loss of Creditor Protection

Superannuation funds in Australia are generally protected from creditors, providing you with a safety net in case of financial difficulties. Once you withdraw your super early, the money is no longer safeguarded under these protections. This could be significant if you face future financial or legal challenges. For more information on this subject, read our advice on creditors and bankruptcy.

Impact on Government Income Support Payments

While early super access generally does not affect eligibility for government income support, there are situations—such as the specific type of benefit you receive, your age, and the size of your withdrawal—that could lead to changes. Discuss your circumstances with Centrelink or the Department of Veterans’ Affairs before making a move.

Potential Restrictions by Your Super Fund

Keep in mind that not all super funds allow early withdrawals. If your current fund restricts access and you believe early withdrawal is necessary, consider transferring to a fund that offers this flexibility. However, be aware of potential costs and the possibility of losing additional benefits like insurance coverage.

Tax Implications

Early access to your super is subject to taxation. Typically, if you are under 60 years old, about 22% of the amount you withdraw may be deducted as tax. This means that the lump sum you receive will be less than the total amount released, and you should factor this into your decision-making process.

Other Considerations

An early super release can increase your taxable income, potentially influencing other areas such as Child Support arrangements. Hence, we highly recommend viewing this decision through the lens of your overall financial plan.

How much tax do I pay if I withdraw my super early?

As mentioned above, withdrawing super early is subject to a 17-22% tax. But the rate and structure depend on the circumstances under which you’re accessing your funds. Here’s a detailed breakdown:

Severe Financial Hardship

• Tax Treatment:
  Withdrawals for severe financial hardship are taxed as a normal super lump sum.
• Tax Rate if Under 60:
  If you’re under 60 years old, the tax deducted on the withdrawal generally falls between 17% and 22% of the amount withdrawn. This means that for every $100 you withdraw, you may receive roughly between $78 and $83 after tax.
• Tax Rate if Over 60:
  If you’re over 60, you typically won’t be taxed on the lump sum unless the amount you withdraw includes an untaxed component from your super balance.

Access on Compassionate Grounds

• Tax Treatment:
  When you withdraw your super on compassionate grounds (for expenses like medical treatment, home modifications, or funeral expenses), the amount is also treated as a normal super lump sum.
• Tax Implications:
  As with severe financial hardship, if you’re under 60, expect a tax rate in the range of 17% to 22%. Over 60, most of your withdrawal will generally be tax-free unless there’s an untaxed element.

Terminal Medical Condition

• Tax-Free Option:
  If you access your super due to a terminal medical condition, you may be eligible to receive your super as a tax-free lump sum. To qualify, the condition must be certified by medical practitioners either at the time of the payment or within 90 days of receiving it.
• Otherwise:
  If you don’t meet the conditions for tax-free treatment fully, the withdrawal would be taxed as a normal super lump sum, meaning the standard rates apply.

Temporary and Permanent Incapacity

• Temporary Incapacity:
  In cases of temporary incapacity, your super is usually paid as an income stream rather than a lump sum. The tax rate for income streams differs from that of lump sums, and the funds are taxed according to super income stream tax rules.
• Permanent Incapacity:
  For permanent incapacity (sometimes called a ‘disability super benefit’), you may have the option to receive the funds either as a lump sum or an income stream. The tax implications here depend on how your withdrawal is structured. 

Typically, if you’re under your preservation age and receiving an income stream, you might benefit from a tax offset on the taxed element of your taxable component. If you’re over your preservation age or opt for a lump sum, the withdrawal is taxed under the normal super benefit tax rates.

Special Case: Small Super Balances

• Super Balances Less Than $200:
  If your super account balance is less than $200—for example, if your employment is terminated or you locate a ‘lost super’ account—no tax is payable on the withdrawal.

Can I access my super early to pay off debt?

While you can use your early release of super to help pay off debts, it’s important to understand the conditions you can use it for under the severe hardship provision.

Your payment can only be used to settle reasonable living expenses, and can only be used to settle payments that are in arrears. For example, you can’t use your early release super to clear a credit card debt or another loan unless it directly affects your everyday living expenses. If these are debts that you are concerned about, consider speaking to someone about credit card or debt consolidation. You may find that they can help you with a more appropriate solution for your situation.

How do I apply for an early withdrawal of my super?

If you believe you may be a good candidate for early release of super due to financial hardship, here’s how you can apply:

1. Speak to your super fund to see if they allow for early release of super for financial hardship
2. If they don’t allow for it, consider transferring to a super fund that does
3. Fill out an application that explains the cause of your hardship and the living expenses that you are in arrears for
4. Describe how you’ll use the money to address your financial hardship, if you are approved
5. Provide evidence of your household income as proof that you can’t meet your expenses
6. Ask the DHS or Centrelink for a financial hardship letter that outlines that you’ve met their requirements and submit it with your application

Remember that every super fund is different and may have different means for assessing your application. Once they have all your information, they will make a decision on whether or not your application will be approved.

Do I have to tell Centrelink if I withdraw my super early?

​​If you withdraw money from your superannuation fund, you must inform Centrelink within 14 days. Failure to do so could result in overpayments that you’ll have to repay or, potentially, penalties for non-disclosure.

Important Note:

Making a lump sum withdrawal from super can potentially wipe out Centrelink payments entirely, depending on how you withdraw or where you allocate the funds. The different types of withdrawals are assessed differently:

1. Lump sum withdrawal from a super accumulation account:
   1. Reduces the value of your accumulation account that counts toward the Centrelink assets test
   2. Centrelink needs to be updated with the new balance of where the funds were allocated (e.g., personal bank account)
   3. If you spent the withdrawal immediately, only the reduction in the accumulation balance needs to be reported

1. Full or partial commutation of an account-based pension or one-off lump sum increased pension payment:
   1. These may have different impacts on both the assets test and income test for Centrelink purposes.

Speak to Debt Negotiators today about getting out of debt, for good

While accessing the early release of super may be a good solution for some people who are experiencing hardship, in general, it should be treated as a last resort. Super is your safety net for retirement and will make a big impact on how comfortable you are in your future. When you withdraw early, those losses crystallise due to the compound interest you lose on the withdrawn funds. If that’s worked out over a long period of time, those losses can be substantial.

Therefore, it’s always best to speak to someone you trust such as a solicitor, accountant or debt relief professional before you make a decision.

The friendly team at Debt Negotiators have helped thousands of Australians take back control of their debt in ways that are manageable and allow you to get back on your feet and simplify your finances. Get in contact with the team today to have a chat about how you can get relief from the burden of the debt, and regain control of your life.