Early Access to Superannuation

Jason · 00:00Welcome to episode 147 of The Numbers Game. I'm Jase. I'm here with Nick and Marty. How are we going, guys?

Marty · 00:08Going well, Jase. Christmas tree's up. Presents are starting to just find their way under it. Always a lovely time of the year. So looking forward to the lead up. Nick, how are you?

Nick · 00:19Mate, going well. Just, yeah, it is a good time of year. Limping to the end of the line. Not that anything's wrong or anything. Just, you know, you always get to this time of the year and you're looking forward to just that first few weeks in January, you know, floating around, drinking, not caring what you eat, um, you know, working on the vitamin D intake.

Nick · 00:40Um, yeah, looking forward to the end of the year, mate. But, uh, all good. Looking forward to another Numbers Game episode. Jase, how are you, mate?

Jason · 00:49Good, mate. I thought the, uh, drinking and the vitamin D intake started around spring racing carnival for, uh, guys like yourself with all of the different events and things that you get invited to.

Nick · 00:58Guys like myself, do you put yourself in that category or?

Jason · 01:01Yep. Yeah, I was throwing myself under the bus for that. I feel like it's been a long October, November and a good start to December. You know, they call it silly season for a reason. You know, there's always a look. I think it's this time of year as well for people in business or even those, you know, working in organizations.

Jason · 01:20It's fun. It's exciting. Great time to socialize and connect. And The weather's doing good things usually, a bit hit and miss, you know, for those of us in Melbourne. But the rest of us, you know, I was looking up north at the weather up there and, you know, time's good and Christmas approaches. The Christmas tree is not up in our place though.

Jason · 01:35Casey and her sister are the Christmas Grinches, so we don't get a Christmas tree, which I'm pretty upset about. But we'll have all of the decorations in the office. So I leave home to go to the office to get my Christmas buzz happening.

Marty · 01:48What do you mean you don't have a Christmas tree?

Jason · 01:50Marty, it breaks my heart. Don't even go there. It's just they—

Nick · 01:55Casey blames the cats.

Jason · 01:55Oh, the cat will attack pack the tree, but I just think they just both are the Christmas Grinch and she doesn't want a Christmas tree.

Marty · 02:01Bloody cats.

Jason · 02:04I'm gonna set one up when she's not home actually. Bugger it, you've given me the idea, Marty. I'm gonna do it.

Marty · 02:09Come on, do it. Come on, Case.

Nick · 02:11They'll probably love it. They'll love it for sure. They'll thank you for it.

Jason · 02:15No, they will, they will. Today, guys, Dashboard Insights, no matter your industry, your market segment, or your occupation, Dashboard Insights has a solution that can meet your needs. So for all of our listeners out there, if you haven't checked it out yet, go and have a look at Dashboard Insights. Boardinsights.com. Give you plenty of data and figures and things to mull over over the Chrissy New Year break before you crack into the new year and get your business running at its absolute peak performance.

Jason · 02:40Uh, Nick, what do we have on today's episode?

Nick · 02:46Today I want to talk about superannuation, the exciting topic of superannuation. Um, and I thought it was relevant, and we're going to take a bit of a different approach and maybe a not so popular one compared to what we hear out there and what we've learned over the years around the importance of super, and actually what we've preached on this podcast around the importance of super.

Nick · 03:09But the reality is at the moment, the times are tough for people. Rate rise after rate rise, household savings on the decline compared to where they were throughout COVID. And I think the RBA has recently raised some released some stats that suggest that now 15% of households cannot afford to meet their monthly expenses, which is a big problem.

Nick · 03:33We have another wave of fixed interest home loans coming out next year. I'd suggest that's probably the people that were fixed for 3 years. We've had a wave this year of those that were originally fixed for 2 years.

Nick · 03:48Some people took 3-year fixed rates, so they're all going to come out next year and they're going to get a rude shock as far as their repayments go. So, a question that I had the other week, and I just thought it'd be interesting to chat to you boys about it, but the question was, can I get early access to my super if I'm in trouble, whether that be financial trouble or medical trouble or whatnot?

Nick · 04:15And it's something that I think not many people know that they can get access to their super. And if they do know, they don't really know the ins and outs of how it works and what they can get access to. So I thought it'd be interesting just to cover off some of the reasons where you can access your super at an early age, as in you haven't retired yet or you haven't reached preservation age.

Nick · 04:36And I'll start by saying it's an absolute worst case or last resort. Obviously your super is there for a reason, that reason being to fund your retirement. And we spoke about this a couple of weeks ago, but what we're seeing now in 2023 and beyond is the benefit the superannuation system has with all the baby boomers coming through to retirement and being well and truly in a good position to retire.

Nick · 05:05And they can— a lot of that's because of the superannuation system that was brought in in the '80s, or made compulsory in the '80s. So very important, and accessing it early has to be a very last resort, which is why I was very frustrated through COVID when they They brought out the rules where you could take $10,000 out and anyone could do it basically.

Nick · 05:24So, but in saying that, for some people it might be the only option. So I thought we'd cover off on some of the reasons why you can get access to it. And I'll also say that they don't make it easy. So just as I've mentioned then around the importance of super, the government and the superannuation funds also have the same the same view that super is very important, so they don't make it easy for you to access it.

Nick · 05:51But there are options out there. So one of those first options is a release of super on compassionate grounds. And compassionate grounds covers a few things. The first one is paying for medical treatment or transport for you or your dependents.

Nick · 06:09So your dependents being husband, wife, or your children. Making a payment on your mortgage or council rates so you don't lose your home. Obviously, it must be your house and not someone else's, and it must also be your owner-occupied home and not an investment property.

Nick · 06:28But if you're at the point where you're at risk of losing your house because of mortgage or rates payments, you can have early access to your super to bring that up to speed. There's a rule around that, which is a max of 3 months of repayments plus 12 months of loan interest.

Nick · 06:47And the other thing to remember here is this is the ATO rulings. The individual super funds also have their own rulings on what you can pull super out for. Another one is expenses to accommodate yourself or a dependent with a severe disability. So things like payments to modify your car or your home if someone is disabled.

Nick · 07:07The purchase of a modified car, I just mentioned that, sorry, and the purchase of disability aids. So all these things that are absolute necessities that you, and you literally don't have the money to access these things.

Nick · 07:23And when I say you don't have the money, the rulings are you don't have savings and you also cannot borrow it. If you've got the ability to get a loan, they would rather you do that first. Another one is paying for palliative care for yourself or your dependent. So things like accommodation costs, palliative care service providers, and palliative care management costs are all things that you can gain access to your super for.

Nick · 07:49And this is the last one for compassion and grounds, but paying for the death, funeral, or burial expenses of a dependent. So things like funeral service, burial, or cremation fees. These are all things that are covered under compassionate grounds.

Nick · 08:06So there's a few others which I want to talk about, but just your original thoughts on this and, you know, do you think this is something people should consider? Do you think it's a good thing that we have this option available? Obviously, there's trillions of dollars sitting in the superannuation environment.

Nick · 08:23So, you know, for a lot of people, particularly in their 20s or 30s, they might not be able to touch it for 30-odd years. So, What's, what's your initial thoughts?

Jason · 08:33I'm glad you're sharing because a lot of that I, I haven't never heard anyone talk about or bring up. So I think it's important, especially heading into some pretty difficult times when it comes to living expenses. And as you touched on, you know, nearly, nearly a quarter or a fifth of homeowners are struggling to afford their repayments at the moment.

Jason · 08:51So you can only imagine if you then ended up in a, in a difficult situation and thought you're going to lose your home. And thought, well, I've got to put it up for sale and then try and find a rental, or, you know, my family's going to be out on the street. It's actually nice to know there's a way, there's a place to turn to get some relief.

Jason · 09:08Even when it comes to, you know, the death and funeral expenses, palliative care, disability, like the fact that it exists, that you can access your super for that. I think it's important to share those things. I agree with you in a sense that super shouldn't just be touched willy-nilly.

Jason · 09:26It is really important to ensure it does sit there for a long period of time to build that retirement wealth. I was also frustrated during COVID when the ATO and the government came out and went, yep, cool. I think, was it you could access $10,000 twice? One in one financial year, one in the next?

Nick · 09:43Correct.

Marty · 09:43Yeah.

Jason · 09:44Yeah. So there was quite, quite— and of course frustration also came from clients not contacting us first to at least have the conversation, you know, financial advisor or tax advice on that. I think there's numbers where if you're in your late 20s or early 30s, $10,000 in super equates to almost $100,000 in super when you get to retirement age.

Jason · 10:05So for those people that went, oh great, this is a great opportunity to get my, you know, 10, 20 grand out of super because I can and there's not really much I have to do to prove it. That $20,000 that's now no longer in super has dropped your retirement savings by possibly $200,000 when you get to retirement age.

Jason · 10:22That is a huge difference in what's going to be there. So I think while this is all great to know, it needs to be a last resort and really needs to be— I think you— there should be some good parameters and steps in place to show that, you know, it's your last resort.

Jason · 10:39Hopefully it's not something that's easy for people to kind of tick a few boxes and release out of super and kind of go about their way.

Marty · 10:45Yeah, I'm the same. I think I'm glad you brought these items up because again, you don't want anyone to go into poverty or severe trauma based on where you can access super, but it is a last resort.

Marty · 11:01And I think in that situation, it is your money. At the end of the day, it is your money. So I go, uh, why wouldn't you have access if there's great hardship brought upon a family in some way? So I think that's, um, It's humane, basically.

Nick · 11:18Yeah, that's actually a really good way of putting it, um, for sure. And yeah, I think we all, we all, we all know the consequences, um, but I think, yeah, to your point, Jase, the difference between having a roof over your head or not, um, you know, it's humane to give people access to their money.

Nick · 11:35Marty, you're spot on. And look, they don't make it easy, um, I know that for a fact because I've been involved trying to, to access it for clients. And different super funds have different rules. So it's important to remember that if you're, if you're with a particular super fund and they don't allow access, it's very easy to move your super to another fund and another fund that might allow access.

Nick · 11:57And I've just got an example here for AustralianSuper. I just thought I'd give people a bit of an understanding, but financial hardship is different to compassionate grounds. So I've talked about the reasons for compassionate grounds. Financial hardship could be just not having the ability to meet your living expenses versus the property scenario I gave under compassionate grounds.

Nick · 12:19Financial hardship, you have to be receiving government payments for 26 weeks. So if you're on welfare, I guess, or government welfare, once you've hit 26 weeks, that means you can then apply for financial hardship.

Nick · 12:37Anyone who hasn't gone through that process doesn't. And it basically means that you can't meet your living or family expenses or your family's living expenses. And then AustralianSuper have their own rules on it. If you've experienced financial hardship for some time, you can access one payment of up to $10,000 gross in a 12-month period if you haven't received a financial hardship payment from any super fund within the last 12 months.

Nick · 13:06So you can't just keep switching funds and getting a hardship payment. Um, you've received Commonwealth Income Support payments for a continuous period of 26 weeks. So if you've never been on, um, government support, then they don't think you would class as financial hardship, which I kind of understand because the assumption is you've probably been working, you should have some savings.

Nick · 13:27Um, you receive these payments when you make your application for payment under financial hardship. And it goes on to a few other things, but I think what I'm trying to get across here is that different funds have a few different reasons and some make it harder than others.

Nick · 13:44So just understand that you can move funds if you need to, to get access. Some other things that aren't necessarily compassionate: terminal medical condition. So, you know, you're terminally ill and a doctor has provided evidence that you are terminally ill.

Nick · 13:59What's the point in having, you know, $600,000 in super for 30 years' time if you've got 18 months to live? So if you are terminally ill, you can access your super.

Jason · 14:09Is there a timeline on that, Nick? So yeah, you said terminal. So as long as it's a diagnosis that you've got X amount of time left, whether it does need to be less than 12 months, less than 24 months, or—

Nick · 14:20I don't know the answer to that without looking at it, but my assumption is it wouldn't matter. I think if you're terminal, you're terminal. So yeah, I don't think it would matter. Permanent incapacity, so you don't have, you know, you actually can't earn an income anymore, then you've got the ability then to access your super as an income stream or take it out as a lump sum.

Nick · 14:43And obviously we spoke about medical treatment that you can't afford, but one of the interesting ones not many people know is one of those is actually going through the IVF process. So there is a particular company that specializes in assisting you access your super if you are looking to start a family and you were going through IVF.

Nick · 15:03And you have to be legitimately going through IVF, as in you have medical, uh, medical issues, which means you've reverted to IVF, not just choosing to go there. But you can actually access your super. I think for a lot of people, IVF is, is that, is out of reach because of the cost.

Nick · 15:22It's not cheap, particularly when you've got to keep going back to the well. So there are companies that can assist you, or there's one particular company that can assist you access your super for IVF, which I think is great for young people looking to start a family. Um, thoughts on the IVF?

Nick · 15:38Because it's, it's not a common— not many people know about it unless they, they've been through IVF themselves. Um, but I think broadly most of the the population wouldn't be aware of that.

Jason · 15:48Yeah, I've said it, I've seen a client draw some pretty big chunky lump sums of money out of their company, and when I had to ask the question like, come on, what's going on, I was a little bit worried. And the client opened up and said they were, their payments to go through the IVF process, and it left their company in quite a, a difficult financial situation that was quite hard to claw back from.

Jason · 16:11So I think Yeah, that's great to know that that is available. And, you know, for someone who wants to start a family and has medical issues that prevent that from happening naturally, I think it's a fantastic use of— as Marty and you have touched on before— that's your money anyway. It's just timing of when you get to access it.

Marty · 16:28I think the IVF thing's fantastic. You know, it's, uh, you're investing in life. I think there's no better investment, really. What about if a child is sick? Does that come under Is it just the person with the super?

Marty · 16:43Or let's say there's— because there's a lot of parents out there that really have some seriously ill children that cost a lot of money on that same pretense. Does that apply for the kids as well?

Nick · 16:56For sure. Yeah, yeah. Anyone that's dependent. So, you know, it could be your wife, your husband, or anyone who's dependent. And dependent means anyone who's financially dependent on you.

Marty · 17:08On you.

Nick · 17:09So yeah, definitely that would be your children without a doubt.

Marty · 17:12That's a really important one to bring up because I just, over the journey, so many times, similar, Jase, you see money coming out of a business account and why is that happening? Oh, we've had real problems with our child and in sickness and we have to sort that out.

Marty · 17:28So yeah, that's great to know for people.

Nick · 17:31The only other thing to think about is there's tax consequences as well. So if you're at If you are drawing money, Jason, you might know a bit more about this than I do, but if you are drawing money out of your super, there are tax consequences because you're taking that out as an income. It will depend on a few things.

Nick · 17:47It'll depend on your age and your income bracket and also whether the super money you're bringing out is taxed or untaxed. And what I mean by that is if you've, let's say you've put your super in from your employer, and you've received a tax deduction for that, that will have different tax attached than, okay, my super money has gone in from my employer, but I've also got an extra $5,000 this year that I've already paid tax on.

Nick · 18:16I now want to contribute that to super. You've already paid tax on that money, so the money's already been taxed. So that's something to remember. What you pull out will be taxed and it will be different for each individual and As always, you'll need to get your own advice on that. But, um, Jase, any high-level advice on that?

Jason · 18:34Definitely differs for everyone based on, yeah, the tax-free component and the taxable component of the super fund. Again, depending on a whole myriad of factors, but generally money within the fund, the investment earnings taxed at 15 cents to the dollar, the contributions your employer puts in taxed at 15 cents to the dollar.

Jason · 18:50So that makes up your taxed component. But if you've at some point in your life put in your own after-tax dollars and built up your super fund in different ways, there may be different elements. And again, if you're taking it out closer to retirement age versus taking it out when you're younger due to financial hardship, there'll be different taxable amounts and whatever was untaxed may then fall into your marginal tax rate depending on other offsets as well that are applied.

Jason · 19:15Yeah. Everyone's circumstance will definitely be different though. Yeah.

Nick · 19:18So again, you know, this is an absolute last resort, but I think it's important that people understand options out there. You know, we've talked about tax debts and the importance of communicating with the ATO. If you've got a tax debt, we've talked about having home loan problems, as in home loan repayment problems, the importance of communication and how lenders are actually being lenient now and will talk to you and will help you through a rough time because they don't want to see your house up for sale.

Nick · 19:47It's the last thing they actually want. So I think it's important given, you know, some people are struggling out there with all of the interest rate rises and not just that. You've also got just general inflation and cost of goods. People need to be aware of the options that are there and make sure that you're doing everything you can to understand what your different options are.

Nick · 20:06Don't put your head in the sand. There are, there are ways out there and there are options out there. So if that is you and you're thinking, you know, this is something that you might need help with, happy to have a chat as well if you want to get in touch. But I think it's also good to arm our listeners with this kind of information because it might not be them, but it might be friends, family that are having issues and they can say, hey, do you know this option's out there?

Nick · 20:31So yeah, I thought it was just something different to bring up and I think it's relevant given, you know, some people are struggling and are going to continue to struggle into 2024.

Marty · 20:42Yeah, it's fantastic content, Nick, actually. It's like I said, it just gives you, we talk a lot about, you know, investing well and creating upsides, but Again, you need to know, you know, sometimes life do go off the tracks and you need to be able to know what to do in those circumstances as well.

Marty · 20:58So I think it's great content, would help a lot of people out there that need it.

Jason · 21:03You know, there's nothing better than having a financial advisor that you can turn to, ask questions that you can trust. And we've touched on it in so many episodes that having a financial advisor doesn't have to be expensive. It's not out of reach for everyday people who, you know, they've got some money sitting in super and they're not even looking at it.

Jason · 21:19So I would stress that if you haven't reached out to Innov8, this is your opportunity to check out innovate, I-N-O-V-A-Y-T, .com.au. Just get in touch with the team and have a convo about what's happening in your super, what insurances you've got, and what are your options. If you are feeling a bit stuck, there are people that care and that will guide you through this.

Jason · 21:37So reach out. Nick, Marty, the team at Innovate are there for you, and as are we here at The Numbers Game. Until next time.

Marty · 21:45Game over.