The number of people requesting early withdrawal of their superannuation balances to the Department of Human Services has jumped 51.7 per cent in the year to June 30 2016.
But the requests are often not successful, with applications approved in full or part up only up 6.3 per cent, according to new figures.
As this chart shows, the number of applications for compassionate super withdrawal has jumped dramatically in the most recent year, with 29,379 requests received by the Department of Human Services compared to 19,367 requests in 2015-15.
That year the number was up 4.2 per cent from 19,286, experienced in 2013-14; a figure which in turn was up seven per cent from the 18,024 applications the year before that.
So the question is ‘why did the figures jump so much in the latest year? ‘
This is hard to determine. However one insider with a social welfare group who did not wish to be named told The New Daily that awareness of the avenue of compassionate grounds to gain early release of super is rising as a result of law firms pushing the issue among their clients who strike financial or health troubles.
Jonathan Brown, media officer for the Consumer Action Legal Service, said part of the explanation for for the jump in requests was tied up with rising house prices and underemployment. “We are seeing rising levels of mortgage stress which often encourages people to seek early super release on compassionate or financial hardship grounds.”
The other avenue to gain early release of super monies is for the alleviation of severe financial hardship. Total withdrawals through this avenue are much larger than those for compassionate grounds.
However both avenues are highly restricted with applications scrutinised by the authorities.
Withdrawals for severe financial hardship must be agreed to by the fund trustees who will need proof to back the request. They are limited to $10,000.
Withdrawals on compassionate grounds are administered by the Department of Human Services and restricted to the following circumstances:
- pay for medical treatment or transport, for yourself or a dependant or pay for transport to the treatment
- prevent your home from being sold by the lender that holds the mortgage
- modify your home or vehicle to accommodate your own needs, or the needs of a dependant, for a severe disability
- pay for palliative care for yourself or a dependant with a terminal medical condition
- pay for expenses associated with a dependant’s death, funeral or burial
To be eligible members need to have been on government income support for 26 weeks or 39 weeks if they have received their relevant preservation age
Taxation on compassionate withdrawals
Each case has its own tax treatment:
- In cases of terminal illness, there is no tax
- For people becoming permanently incapacitated who take out their super as a lump sum, the tax-free component of their withdrawal is increased to reflect the period they would have been gainfully employed.
- Those who become permanently incapacitated, are below the preservation age and draw their benefit as an income stream are taxed as if aged 55 to 59. This means money drawn from your after tax contributions is tax-free and money drawn from your taxable (super guarantee and salary sacrifice) component will be taxed at their marginal tax rate, less a 15 per cent tax offset.
- In most compassionate ground cases, the taxed component of any super released early under preservation age is taxed at 20 per cent plus Medicare Levy.