Most superannuation benefits are “preserved”.

That is, they cannot be accessed until certain conditions have been met. These are referred to as “conditions of release”.
The most common conditions of release include:

1. Retirement, after having reached preservation age (see the following table)
2. Turning 65 years of age, even if still working
3. Death, or being diagnosed with a terminal illness

Preservation age

There are other circumstances where people may be able to access all or a part of their preserved superannuation benefits early. However, the conditions applying to these early-access conditions of release can be difficult to navigate, and additional restrictions may apply.

1. First Home Super Savers Scheme
This allows first home buyers to access voluntary contributions they have made to super, along with the associated earnings on those contributions, for the purpose of purchasing their first home. The maximum contributions that can be released are capped at $15,000 per year, up to a maximum of $30,000 ($50,000 from 1 July 2022), plus the associated earnings.

The Australian Taxation Office determines the amount that can be released.

The released amounts may be taxable.

2. Severe Financial Hardship
A person may access some of their superannuation where they have been in receipt of Government income support benefits (e.g. JobSeeker Payment) for a continuous period of at least 26 weeks and they are unable to meet reasonable and immediate living expenses.

The minimum amount that can be released is $1,000, and the maximum is $10,000. Only one withdrawal can be made on grounds of severe financial hardship each year.

Different rules apply to people who have reached their preservation age and are seeking access on grounds of severe financial hardship.

Benefits withdrawn from superannuation under severe financial hardship for people under 60 years of age are subject the normal tax that apply to superannuation lump sum benefits.

3. Compassionate grounds
Circumstances where preserved superannuation benefits may be released on compassionate grounds include:

• Medical treatment or medical transport for a fund member or their dependant where treatment is not available through the public health system and is required to treat a life-threatening injury or illness, acute or chronic pain, or acute or chronic mental illness.
• Accommodating a disability, including costs of modifying a principal place of residence, modifying a vehicle, paying for disability aids, or purchasing a vehicle.
• Palliative care for a terminal illness.
• Funeral, burial and death expenses for a dependant.
• Preventing the foreclosure or forced sale of a principal place of residence.

Benefits can only be released from superannuation to cover unpaid costs and approval for release of funds must be given by the Australian Taxation Office. The amount that may be released depends on the specific circumstances however the release of funds to prevent the foreclosure or forced sale of a principal residence has defined limits.

Benefits withdrawn from superannuation on compassionate grounds by people under 60 years of age are taxed in the same manner as for severe financial hardship.

4. Temporary incapacity
When a person’s income stops because they become temporarily incapacitated, they may receive a benefit from their superannuation fund to replace their lost income. Generally, a benefit can only be paid under this condition of release where the superannuation fund holds income protection or salary continuance insurance for the person.

Payments made from a superannuation fund on grounds of temporary incapacity are included as assessable income and are taxed at the person’s marginal tax rate.

5. Permanent incapacity
A person is taken to be permanently incapacitated when the trustees of that person’s superannuation fund are satisfied the person has a permanent physical or mental medical condition that results in them being unlikely to become gainfully employed again.

Lump sums withdrawn from superannuation on grounds of permanent incapacity are taxed as a normal superannuation lump sum benefit payment. Benefits may also be paid as a regular income stream. The income stream is taxable in the same manner as other superannuation income streams.

Superannuation funds will require medical evidence to support applications for the release of benefits on grounds of permanent incapacity.

6. Benefit of less than $200
If employment is terminated and a person has a superannuation benefit of less than $200, they may access their benefit as a lump sum. The benefit is tax-free.

7. Transition to retirement
Once a person reaches their preservation age, they can commence a transition to retirement arrangement where their superannuation benefit is paid in the form of a transition to retirement income stream or pension. They are unable to access lump sums, and income payments must be between 2% (4% from 1 July 2023) and 10% of their balance, each financial year. 

The income derived from a person’s taxable component of their superannuation balance is included as assessable income and is taxed at their marginal tax rate, however they will also receive a 15% tax offset. Once a person turns 60, the income they draw from their transition to retirement pension is tax free.

In this article we have discussed, albeit at a high level, the circumstances where superannuation benefits might be accessed before normal retirement. Each condition of release is subject to specific conditions. This is not intended to be an exhaustive list.

Furthermore, while the conditions of release mentioned are accommodated within superannuation and tax law, some superannuation funds may not permit release of benefits in all circumstances.

If seeking to access superannuation benefits early, it is recommended you seek guidance from a qualified financial adviser.