Date posted: 21/02/2024 3 min read

CA ANZ response to ATO Illegal Early Release Estimate Announcement – Part 2

Chartered Accountants ANZ notes today's release of the Australian Taxation Office’s (ATO) inaugural Illegal Early Release Estimate (IERE).

In Brief

  • In some cases early access to superannuation before retirement is permitted
  • Access to superannuation before retirement has been a feature of the superannuation system for more than 35 years
  • The early access to superannuation before retirement rules must be reviewed

In some cases, early access to superannuation before retirement is permitted

There are more than 13 different rules that allows superannuation benefits to be paid before someone retires including:

  • death
  • permanent incapacity
  • compassionate grounds
  • severe financial hardship.

Based on the Australian Prudential Regulation Authority (APRA) data, the following benefits have been paid ($ millions):

Early release of Super

The high amounts for compassionate grounds for the 19/20 and 20/21 financial years are for Covid early release payments. The ATO says that approximately $37.8 billion was approved to be paid out for this short- term rule. The difference between the ATO number and the amount actually paid by super funds means that there are a number of ATO approved releases that were not actioned by a superannuation fund member, or a superannuation fund could only pay out less than permitted by the ATO.

What we can see from these numbers is that each year a proportion of the superannuation population needs access to their superannuation before retirement.

Many in the community will take money out of their superannuation funds if they are allowed to before retirement. For example, in the 22/23 financial year, $6.7 billion was paid out from APRA regulated superannuation funds, because the money was classed as “unrestricted non-preserved”. That is, it was classed as money held in the fund that could be paid out at any time.

Unfortunately, similar data for all these superannuation payment rules is unavailable from self-managed super funds.

Compassionate grounds and financial hardship rules

Access to superannuation before retirement has been a feature of the superannuation system for more than 35 years.

The last major adjustment to these rules occurred in 1997.

Compassionate grounds allow the release of money from superannuation when a member satisfies specific requirements for a list of situations such as treating life threatening illnesses, palliative care and foreclosure of a mortgage over a family home. The only way to claim for these benefits is by applying to the ATO.

According to the ATO website, the most popular category was for medical reasons which did not include palliative care. Of the medical reasons, 75% of the amount allowed to be withdrawn was for dental or weight loss procedures. About 8% has been for fertility treatments. (With increasing interest rates, it is reasonable to assume that we can expect an increase in the number of applications for those facing foreclosure on their family home mortgage.)

Financial hardship allows for the early release of money from superannuation when a member cannot meet reasonable and immediate family expenses. The person must have been in receipt of Commonwealth income support payments. A superannuation fund’s trustee makes the decision to release money under this rule.

The early access to superannuation before retirement rules must be reviewed

The APRA Annual Superannuation Statistics says that in the 22/23 financial year there were about 77,000 severe financial hardship applications and 53,000 compassionate grounds applications paid.

The ATO website reports that between 55% and 65% of compassionate ground applications are approved. There is no data for the number of severe financial hardship applications that are approved.

Over the last 10 years there have been several treasury consultations about reviewing and updating the compassionate grounds and severe financial hardship early access rules. On each occasion CA ANZ has supported the need to review these rules.

We think those who engage in IER by permanently taking money out of superannuation before retirement can be broken down into four broad categories. Those who:

  • would prefer to have access to their compulsory employer contributions, for a purpose other than retirement; – for example, discretionary spending, purchase a family home, pay off debt etc.
  • have unsuccessfully applied for early access to superannuation under the compassionate grounds and/or the severe financial hardship rules, yet still want access to their superannuation savings for some purpose
  • have fallen on hard times (those with significant debts for example) who believe the only way they can solve their financial problems is to access their money in superannuation
  • those who have been tricked by a fraudster into setting up a SMSF who then steals the victim’s money.

Covid-19 Early release of Super

See the data from COVID-19 early release of super.

Find out more

When you can access your super early

The limited circumstances in which you can access your superannuation before retirement.

Find out more

Illegal early access to super

Make sure you know when it's legal to access your super – there are consequences if you access it illegally.

Find out more