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Self Managed Super Fund (SMSF) Article
How to access your preserved super assets
By Tony Negline.
This article may be out of date.
3rd September 2008
How and when you can properly access some or all of your preserved super assets before retirement is not well known.
There are some acceptable ways for pre-retirees to access their preserved super assets. These rules may apply to anyone who is either ill and cannot work or is in financial difficulty.
As usual the key issue is not what the super laws allow but whether or not these laws are mirrored in a super fund's trust deed.
There are four different ways preserved super can be accessed before retirement: severe financial hardship, compassionate grounds, temporary incapacity and permanent incapacity.
To access preserved super under the severe financial hardship (SFH) rules a member applies to a super fund’s trustee. There are two different SFH rules – one set of rules apply if a member is at least age 55 and 39 weeks and another set of rules apply if a member is under this age.
The rules for members aged at least 55 and 39 weeks are used infrequently because people who fall into this age bracket are able to access all their preserved super by retiring permanently.
A member aged under 55 and 39 weeks must have been receiving Commonwealth income support payments continuously for 26 weeks. The member must be receiving this payment when they claim to be under SFH and must also have official documentary evidence proving their claims about the type of government payment and the period of time it has been paid.
Additionally members under age 55 and 39 weeks must be able to convince a super fund’s trustee that they cannot meet reasonable and immediate living expenses. There are no rules that tell a trustee how they determine a member’s bona fides in this respect.
A fund may only pay one amount for a 12 month period (which begins on the day the first SFH payment is made) to a member under the SFH rules and may only pay up to $10,000 over that 12 month period.
To access preserved super under compassionate grounds (CG) a member must apply to the Australian Prudential Regulation Authority. The CG rules apply to a fund member or a member’s dependants. For example, medical treatment (including dental treatment), necessary home or car modifications due to severe disability and mortgage repayments to prevent a forced sale of a home.
APRA will only approve the payment of a benefit under this rule if it can be established that without some or all of a member’s super assets the expense could not be met. For each CG rule APRA has a list of items which have to be included with an application to justify the claim.
For example if mortgage assistance is required then a member must produce official notification from the lender that they are about to begin foreclosing on a loan. Under this rule the maximum that APRA can authorise is three months mortgage repayments and twelve months interest on the outstanding balance.
For all other CG rules APRA will allow an amount of preserved super to be withdrawn after taking into account a member’s financial capacity.
If a member has temporarily stopped work because of a mental or physical illness then a super fund is able to pay out a pension so that the member continues to receive an equivalent pre-illness remuneration. The pension can only be paid while the member cannot do the same work as they were doing prior to becoming ill.
This temporary incapacity benefit is very similar to income protection insurance and many super fund trustees like to insure this type of benefit. A tax deduction is allowed to trustees for the cost of this insurance.
The last way of accessing super before retirement is via permanent invalidity. Under super laws this occurs when a trustee “is reasonably satisfied that the member is unlikely, because of [mental or physical] ill-health, ever again to engage in gainful employment for which the member is reasonably qualified by education, training or experience.” When this occurs all a member’s benefits can be paid out. Notice that it is the trustee alone who decides if a member satisfies this definition.Any benefit out of a fund because of the above rules will be subject to tax. Tax concessions are available for permanent invalidity but access to these concessions involve certification from two qualified medical practitioners.
Member makes application to APRA for a one-off payment:
- Pay medical treatment for the member or the member’s relative
- Prevent foreclosure on a loan on member’s principal place of residence
- Modify principal place of residence or vehicle to accommodate special needs of member or their dependant if they are severely disabled
- Pay palliative care expenses
- Pay expenses for a dependent's palliative care, funeral, death or burial
- APRA must be satisfied that applicant does not have financial capacity to meet expenses
The amount paid must be no more than approved by the APRA.
Severe Financial Hardship
Aged less than 55 and 39 weeks:
- Trustee is satisfied based on written evidence (dated less 22 days before application is made) from a Commonwealth department that the person has received Commonwealth income payments for 26 continuous weeks and the trustee is of the view the person cannot meet reasonable and immediate family living expenses
- Payment can only be paid from a super fund once in a twelve month period. The amount paid must be more than $1,000 and no more than $15,000.
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