What early access to super might cost you in retirement

The higher cost of living is tempting more Australians to think about withdrawing super before they retire. We explain the rules, what it could mean for your super balance, and other options you might have. 

More than 50% of Australians said in a recent survey that they’d access their super early if they had the chance to*.

The survey showed the main motivation to do this was the rising cost of living, with people saying it’d reduce some of the financial pressures they were currently facing.

The truth is, most of us won’t be able to access super until we retire, but there may be special circumstances where you can access this money early - one being severe financial hardship.

If it’s crossed your mind, read on to see if you could be eligible - and what kind of dent an early withdrawal might have on your future retirement savings. 

1. Are you eligible to withdraw super under severe financial hardship? 

Like most things, there are rules attached to withdrawing super early. You can’t say you’re experiencing severe financial hardship because you can’t afford a holiday or a new car.

There are two tests which can determine if you qualify.

Test one 

Under this test you can access your super if:  

• You’ve received an eligible government income support payment (like Jobseeker) for a continuous period of at least 26 weeks.
• You were receiving those eligible payments at the time of applying.
• You’re unable to meet reasonable and immediate family living expenses, which might include your mortgage repayments, rent, medical expenses, and car repairs.

Test two 

If you don’t qualify under test one and you’ve reached your preservation age (between 55 and 60, depending on your date of birth), plus nine months (39 weeks), you can access your super if:  

• You’ve received an eligible government income support payment for a cumulative period of 39 weeks since you reached your preservation age.
• You’re not employed part-time or full-time on the day you apply. 

2. How much super can be withdrawn? 

In the case of severe financial hardship, if you meet the first test, you may apply to withdraw between $1,000 and $10,000 from your super once in a 12-month period.

If you meet the second test, no withdrawal limits apply.

3. What’s the cost on your retirement savings?

The cost is likely to be more than what you take out of super due to the returns you generally receive on your investment over many years through compound interest.

In a 2022 report by the Association of Superannuation Funds of Australia (ASFA), the group looked at the financial costs of covid-related early super access using ASIC’s Moneysmart calculator^.

Below you can see how a $10,000 withdrawal was estimated to affect super balances at retirement for those who took out super early.

The table shows the effect on your super based on an annual income of $50,000 if you retire at 67. If your income is higher, the estimated cost could also be higher.

Note, these figures don’t take into account the investment returns people may have been earning at the time of making a withdrawal.

4. How are early super withdrawals taxed?

If you’re under your preservation age, tax on what you withdraw is payable as required by the government.

The maximum amount of tax you pay on an early super withdrawal (under severe financial hardship) is 22%. For example, if you’re aged 45 and withdraw $10,000 in super under severe financial hardship, that means you’ll generally only receive $7,800 once tax is taken out.

Once you have reached your preservation age, the payment will generally be tax free. 

Early super payments generally count towards your taxable income for the financial year too, so what you receive could affect eligibility for government support payments and child support.

5. Does an early withdrawal affect insurance in super?

If you don’t have any money left in super, your account will close, and your insurance cover will end.

For this reason, it’s worth having some money in super if you want to keep your insurance cover. 

6. How do you apply for early access?

You need to contact your super fund and depending on your age, prove you meet eligibility requirements to withdraw super early under severe financial hardship. 

If you’re a CFS member, you’ll need to complete a form and you can call us if you need help. The information you need can be found on our financial hardship page.

7. What other options might you have?

If you’re facing financial hardship, there may be other avenues to get help and relieve the pressure.

It may be worth contacting your bank and other financial providers to request hardship assistance. 

Many will work with you to find a solution that suits your circumstances. This might include agreeing to interest only repayments for a short period, or temporarily postponing your repayments.

You may also be able to get help from local charities with food, transport, accommodation and bills. You can find your closest service on the Ask Izzy website.

If you’re experiencing financial hardship, free financial counselling is available too through the National Debt Helpline, which you can call on 1800 007 007.

You may also be eligible for a one-off government crisis payment.

8. When else can you withdraw super early?

There are other circumstances where you may be able to take your super early. Each will also have different eligibility criteria. These situations include:

Compassionate grounds

Compassionate grounds may apply when you need money to pay for:

• medical or palliative care expenses
• your mortgage (in instances where you may lose your home)
• death and funeral costs of someone dependent on you.

Incapacity

If a physical or mental medical condition means you’re unable to work temporarily or permanently, you may be able to access super as a lump sum or via regular payments over a period of time. 

Terminal medical condition

If you have a terminal illness and are likely to pass away within two years, you could also apply for early access to super and there’s no limit on what you can withdraw. The payments are also tax free.

Other instances

• If you’ve got less than $200 in a super account or sitting with the ATO, you can apply to withdraw this amount. 
• If you’re a temporary resident in Australia and want to access your super when you leave the country, you may be eligible to take your super with you.
• Under the First Home Super Saver Scheme, you may be eligible to withdraw a certain amount of voluntary contributions to fund the purchase of your first home.
• A transition to retirement pension may also allow you to access some of the super you’ve saved through regular payments, even if you’re still working.

9. Where can you go for help?

Early access to super may provide opportunities but whatever the reason it’s important to think about what affect it could have on your future retirement savings.

If you’d like some help, please call CFS if you’re a customer or talk to your financial adviser. If you don’t have one and would like some advice, you can use our find an adviser service.

* Finder survey: Early withdrawals: Aussies ready to cash in super to ease financial burdens (Sep 2023)

^ ASFA – The COVID related early release of superannuation – a retrospective look (Aug 2022)