Clients experiencing financial hardship? Don’t let it turn into illegal early access!

01 Aug 2023
Annie Dawson

Annie Dawson

Senior SMSF Technical Specialist

Whilst the law permits a member to access their super due to financial hardship, the eligibility criteria is difficult to satisfy. What’s more, if a member withdraws a benefit prior to meeting the rules, it becomes illegal early access.

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It’s important to know that when it comes to accessing benefits due to financial hardship, it’s up to the trustee of a super fund to determine benefit eligibility, not the ATO. Not only does the trustee have to make sure the member qualifies for severe financial hardship under the super law, but any benefit paid must also be permitted under the fund’s governing rules.

The first hurdle to be cleared is the member must provide their fund’s trustee with a letter from Services Australia (aka Centrelink) confirming the member has been in receipt of eligible government income support payments for the required timeframe.

Services Australia will be able to advise a member if the type of income support payment they receive is eligible (not all of them are) and how long they have been in receipt of the benefit. Whilst some APRA regulated super funds can view this information directly online, this is not the case for all super funds including self-managed super funds.

The trustee must also obtain suitable evidence to determine if the member qualifies for severe financial hardship. The relevant tests will depend on the age of the member.

Members of any age

A member of any age may be able to withdraw some of their super under the severe financial hardship rules if they:

  • are in receipt of eligible Commonwealth government income support payments for a continuous period of 26 weeks, and
  • the trustee is satisfied the member is unable to meet their “reasonable and immediate family living expenses”.

Only lump sums are permitted and the maximum amount which can be released in any year is $10,000. This limit applies to the gross withdrawal, that is, before tax. Only one payment is permitted in any 12 month period. The member is required to be in receipt of the income support payments when Centrelink issues the relevant letter and the letter provided to the trustee must not be dated more than 3 weeks prior to the member applying to the trustee for a benefit.


Members at least preservation age plus 39 weeks

A member may also be eligible to access their super under the severe financial hardship rules if they have:

  • reached their preservation age plus 39 weeks,
  • been in receipt of eligible Commonwealth government income support payments for a cumulative period of 39 weeks after reaching their preservation age, and
  • not be gainfully employed.

The member’s entire account balance may be released in any form (ie as a lump sum or commencing a pension). Remember that a member in this position is already entitled to commence a transition to retirement income stream. Meeting the financial hardship definition would simply mean the balance could be released as a lump sum even if the member is actively seeking employment (and therefore unable to meet the permanent retirement condition of release).


What if a benefit has been paid to the member when they didn’t qualify?

If a member obtains access to their super benefits without satisfying the rules (commonly referred to as illegal early access), the full amount of the payment (including any tax free component) is included in the individual’s assessable income and subject to marginal rates of tax. Returning the monies to the super fund will not “fix” this breach. Instead, the return of cash or assets will be regarded as a super contribution which will need to be preserved until the member is eligible to access their super benefits. There are also potential consequences for the fund trustee ranging from monetary penalties, disqualification as a trustee, removal of the fund’s complying status and imprisonment.

If you’d like to learn more about when members can access super before retirement, check out Heffron's Super Companion:

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