WITHDRAWAL OF FUNDS FROM SUPERANNUATION

Transcription

1 WITHDRAWAL OF FUNDS FROM SUPERANNUATION Superannuation funds are primarily intended to make provision for payments to people when they retire. However, because superannuation funds attract a favourable tax treatment (and have a privileged status in bankruptcy) they have been used by some individuals over the years for various financial planning purposes. In the later 1980s a realization of a looming crisis in finding the retirement of the baby-boom generation - that is, those people born between 1945 and began to develop, and the Commonwealth Government set about regulating superannuation in such a way as to ensure that all employed Australians will have superannuation. Due to the growing realisation of the dimension of the problems the law regarding superannuation has changed, and is continuing to change. For this reason, the time at which money was paid into a superannuation fund is important in determining whether a person has access to it prior to retirement as well as the tax treatment of the money. Another important consideration is whether the fund is a regulated fund, that is, regulated by the Superannuation Industry (Supervision) Act 1993, and the Superannuation Industry (Supervision) Regulations These regulations are referred to in this note as 'the Commonwealth Regulations.' A private superannuation fund set up by individuals for their own financial planning reasons, may not be a regulated fund. That is, it falls outside the requirements of the Act and the Commonwealth Regulations, and also will not qualify for the favourable treatment in the context of taxation and bankruptcy. This note looks only at regulated superannuation funds. In general terms, the money held for a person in a regulated superannuation fund will be held until the person reaches retiring age, dies, becomes permanently incapacitated, or falls into a position of hardship. This paper looks at obtaining money from a regulated fund in circumstances of hardship. ACCESSING SUPERANNUATION DUE TO FINANCIAL HARDSHIP The first principle relating to accessing super due to financial hardship is the roles of the particular super fund concerned. These vary from fund to fund The best starting point for dealing with any client wishing to access super due to financial hardship should be to write to the Trustees of the super fund indicating the type of situation the client is in and seeking information as to the roles of the fund relating to accessing the super in the circumstances of financial hardship. If the roles of the fund forbid accessing funds due to financial hardship then the matter is at an end. If the roles permit withdrawal of super funds due to financial hardship, there are two separate categories to be considered. These are defined in the Commonwealth Regulations. Both are examples of severe financial hardship. 1

2 CONTINUOUS RECEIPT OF A BENEFIT The first is that if a person has been in receipt of a specified Commonwealth support payment for a continuous period of 26 weeks, and was in receipt of that type of payment on the date upon which they obtained the written evidence of their being 00 that benefit. The specified income support payments include: Newstart allowance Widows allowance Sickness allowance Special benefit Partner allowance Mature age partner allowance Parenting payment (other than the allowance paid at the basic rate) Age pension Disability support pension Wife pension Carer payment Bereavement allowance Widow B pension Disability wage supplement Special needs pension In addition the person must be unable to meet reasonable and immediate family living expenses. Business expenses will not suffice. EARLIEST RETIREMENT AGE & BENEFIT & UNEMPLOYMENT An alternative ground upon which a person can access super when in severe financial hardship is if a person has reached their preservation or retiring age, which varies with the date of birth of the person concerned, and has been in receipt of one of the specified Commonwealth income support payments listed above for a cumulative period of 39 weeks after reaching their preservation (retiring) age and was not gainfully employed on the date of application for cashing his or her super benefit. CASHING RESTRICTIONS There is a cashing restriction in regard to both of these categories of severe financial hardship. There is a downward limit of $1,000 (unless the total benefit held for the person is less than that) and an upward limit of $15,000 in each twelve-month period. 2

3 PRESERVATION AGE The preservation - retirement age for a person is presently 55 years, but this age is to increase over a period of time in the following way: Date of Birth Preservation Age Before 1 July July June July June July June July June After 30 June WITHDRAWAL ON COMPASSIONATE GROUNDS Super funds may be withdrawn on compassionate grounds. The compassionate grounds are available even if the person is not in severe financial hardship. Compassionate grounds are: 1. Health Related A person may obtain super for the purpose of payment of medical expenses for the person or a dependant of the person to treat a life threatening illness or injury, to alleviate chronic or acute pain, to alleviate chronic or acute mental disturbance, or to meet the cost of medical treatment not readily available through the public health system. This must be certified by two appropriately qualified medical practitioners of whom one is a specialist. 2. Mortgage Payment To allow a person to make a payment on a loan over their principal residence to prevent the mortgagee exercising a mortgagee sale under a mortgage, or to prevent foreclosure. In these circumstances the maximum release that may be obtained is an amount equal to 12 months interest on the outstanding balance of a loan plus 3 monthly repayments of the mortgage. 3. Disability Modification Modification to a members principal residence or vehicle to accommodate special needs resulting from severe disability of the person concerned or one of their dependants. 4. Palliative Care To pay for-palliative care for the person or costs associated with palliative care, funeral or burial expenses for a dependant of the person concerned. 5. Other - related - expenses Some other expenses of a type consistent with these preceding categories. A person wishing to withdraw money from a fund with rules more restrictive than those rules laid down by the Commonwealth Regulations could consider transferring their superannuation 3

4 into another regulated fund with more relaxed rules, and then applying within the categories set out above. Other than in the case of demonstration of severe financial difficulties, or the compassionate grounds, super is able to be released on a date depending upon when the money was paid to the super fund, and the person by whom it was paid. The principle criteria are the categorisation of the benefits into preserved benefits, restricted non preserved benefits, and unrestricted non-preserved benefits. The question of whether or not a person has retired is also of great importance. Retirement is defined as 'a person over 55 years of age whose employment has come to an end and the fund Trustee is reasonably satisfied that the person never intends to become gainfully employed on either a full time or part time basis again,' or in the case of a person over 60 years of age 'the gainful employment of the person has come to an end after the attaining of 60 years of age.' If a person has attained the age of 65 years then there are no restrictions upon their withdrawing their superannuation benefits. For the sake of completeness attached is a full list of the condition of release of monies from a regulated superannuation fund. Ian Macdonald FCRP Solicitor June

5 retirement ATTACHMENT death permanent incapacity permanent departure from Australia before 1 July 1998, in relation to which a) the trustee is reasonably satisfied that it is for the purpose of permanent residence outside Australia and b) the written request for release of benefits was made before 1 July 1998 termination of gainful employment with a standard employer-sponsor of the fund on or after 1 July 1997 where the members preserved benefits in the fund at the time of the termination are less than $200 severe financial hardship, subject to cashing restriction attaining 65 years of age compassionate ground, subject to cashing restriction termination of gainful employment with an employer who had, or any of whose associates had, at any time, contributed to the fund in relation to the member, subject to cashing restriction in the case of preserved benefits temporary incapacity, subject to cashing restriction any other condition, if expressed to be a condition of release, in an approval by the Regulator. 5