When things are tough financially, desperate times often call for desperate measures.

Many Australians are currently feeling the effect of rising living costs due to increases in food, electricity, and interest rates. These are having a significant impact on balancing the household budget. The same income is being stretched even further to make ends meet.

This results in stress, anxiety, and worry, and can have an adverse effect on relationships within families.

While savings might have diminished, and those who have an emergency fund may be tempted to 'borrow' from it, or alternatively use their credit card more often, these are often 'last resort' options, and best avoided if possible.

However, there is a further temptation some people may be considering to alleviate their financial pain.

These days, most Australians have some savings in superannuation.

For those of us who are employed, our employers contribute 10½% of our salary to a superannuation fund.

However, getting access to our superannuation is not easy.

You see, our superannuation is preserved. This means we can only access it when we have met a condition of release.

Generally, we cannot access superannuation until we retire on or after reaching our 'preservation age'. For most people, preservation age is 60.

However, there are two situations where superannuation may be accessed early.

One is in the case of severe financial hardship, and the other is on compassionate grounds.

But each of these have conditions that need to be met.

Severe financial hardship arises when a person has been receiving government income support benefits such as JobSeeker or a Disability Support Pension for a continuous period of at least 26 weeks, and they are having difficulty in meeting everyday living costs.

The maximum amount that can be released from superannuation is $10,000 each year. Importantly, if you are under your preservation age, any lump sum you withdraw may be taxable up to a rate of 22%. Only one withdrawal can be made each year^[1].

An application for release of benefits on grounds of severe financial hardship can be made directly to your superannuation fund however they will ask for evidence to support your eligibility.

An alternative to severe financial hardship is compassionate grounds.

While there is no upper limit on the amount of superannuation that can be released, the grounds for release are generally restricted to covering medical expenses for treatment that is not available through the public health care system, modify your home or a vehicle to accommodate your or a dependant’s severe disability, meeting funeral costs of a dependant, paying for palliative care, or meeting home loan repayments or council rates in order to avoid losing your family home. Only unpaid expenses can be released.

To request release of superannuation benefits on compassionate grounds, a request needs to be made to the Australian Taxation Office (ATO). This request can be lodged through a person’s My.Gov account.

There are several other conditions of release that may allow superannuation to be accessed early including on diagnosis of a terminal medical condition, death, and permanent incapacity. However, we won’t cover these in this article.

The ATO has recently reminded taxpayers that accessing superannuation without meeting a condition of release is illegal.

Despite this, there are schemes being promoted to help people access their superannuation early. These schemes generally involve establishing a self-managed superannuation fund (SMSF) and then transferring existing superannuation savings to the SMSF. Once the funds are in the SMSF, they are simply withdrawn.

There are promotors who offer to assist people suffering financial hardship to establish a SMSF for the express purpose of accessing superannuation early. They usually charge a healthy fee in return for the service they offer.

Establishing a SMSF to access your superannuation early is something to be avoided at all costs. There are significant penalties applying to individuals and to promoters.

The ATO’s recent announcement on this topic can be found here: Illegal Early Release of Super

For those who find themselves in financial stress and are looking for options to meet their ongoing needs, it is recommended they seek advice from a licenced financial adviser or alternatively, from a financial counsellor with the National Debt Helpline.

[1] Modified conditions apply to people who have reached their preservation age plus 39 weeks and are not gainfully employed.