Super Informed Radio episode #5: What’s the deal with accessing your super early?
|Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper product disclosure statement.
Lyndon: Well, hello there and welcome to Super Informed Radio, our UniSuper podcast. My name is Lyndon.
Marta: I'm Marta.
Rob: And I'm Rob. Welcome back for another installment of Super Informed Radio. Well, we know that you can only access your super under very specific conditions but something that's lately become a bit of a hot button issue is accessing your super earlier that you're currently allowed. This tends to pop up occasionally in the media, so we thought we'd dive into this topic in a bit more detail. So Marta, you and Lyndon both caught up with UniSuper's Public Policy Manager to have a bit of a chat about this?
Marta: Yeah we did. And so there was some interesting insights there and we also took it to the campus and asked a number of our members what they thought about this burning issue.
Lyndon: Yeah, just to get a sense of, you know, people who might be for, against or otherwise just to see what they thought.
Marta: Yeah, you might be surprised about what they came back with.
Rob: It's certainly a topic that people are very passionate about, so shall we get into it?
Marta: Let's do it.
Marta: So as Rob said, it's the question on many people's lips in recent weeks and can be one that can divide dinner parties and even governments in half. What's the deal with accessing your super early? Is it as tidy and uncomplicated as it might sound? Here with us today to take us through the nitty gritty of this issue is our Public Policy Manager here at UniSuper, Benedict Davies. Benedict, thank you for joining us.
Benedict: Thank you.
Lyndon: Benedict, so for the listeners out there who might be wondering what a Public Policy Manager at UniSuper actually does, what does your role entail?
Benedict: Certainly Lyndon. Well, public policy is hard to define but has a lot to do with emerging government policy, which affects the industry and often leads to legislation. So the role is primarily working with industry bodies and chief policy makers like Treasury on new ideas that the government may have, changes to superannuation. My role is primarily to I guess understand what those ideas are, what the consequences of them might be and then to give feedback, constructive feedback, in order to help draft legislation that is workable for the industry.
Lyndon: And we are talking about accessing super early. There seems to be quite a lot of discussion around accessing super especially as the national super pot is growing and growing and growing over time. Why is there such a hesitation to go there in terms of accessing super early?
Benedict: Superannuation is primarily for retirement. There are, however, a whole range of ideas for accessing that only the people talk about. Often they're very worthy causes. Medical bills, to pay for children's education, obviously buy housing is one that's recently in the press. All of those are potentially worthy ideas. They do potentially compromise the sole purpose of superannuation to save for retirement. There's divided opinion across the community on this issue though. Are there ways to make it easier for young people to buy houses is probably the most pressing one that's currently being discussed and is accessing superannuation or diverting superannuation savings towards housing a desirable thing? I don't have an opinion at this stage. The industry's divided on this. Look I understand we've actually spoken to members about accessing superannuation for housing.
Marta: Yes we went on campus recently and spoke to some UniSuper members to see what they thought. Shall we have a listen?
Benedict: Why not?
Marta: If you could would you access your super early?
Man 1: No.
Woman 1: Ooh can't say.
Man 2: That seems like a very foolish thing to do in the long term.
Woman 2: No. No that's not what its purpose is for.
Woman 3: Actually yes, I think. For now, I think I'll actually make an investment which is actually coming up which is really good. Yeah, I think I would. For my age, yeah, I would.
Man 3: You know it's eating your nest egg and it's putting it at risk even if you put it into property or something else, which I assume is why people wanna access it early, to invest it in a different way. It still puts it at a higher risk.
Woman 4: Oh I can't really say, yeah. I don't know. I really don't know. At this moment, no, but I can't say.
Man 4: Yeah at the moment actually I would because I'm starting a business and obviously having a bit of extra capital would be great. I don't know if your question was heading towards sort of home buying and that sort of stuff, which has been in the news a bit. I don't think that's a good idea for people actually, yeah.
Marta: So a bit of a mixed bag of responses there, what did you guys think?
Lyndon: Well, I don't know. I kinda thought that it was good that there were people on both sides like some people are for it but then other people were like, well, that doesn't seem to match the sole purpose of super.
Marta: I was really surprised by some of the members who were very for keeping money within super. Like they were very much like well that's not the point of it, you shouldn't be able to access it.
Benedict: One thing to note though that in terms of financial security, most experts agree that owning a home at retirement is an extremely valuable thing. So we'd broadly be in favor of anything that helps people to have a comfortable retirement through superannuation and also through home ownership. The committee for the economic development of Australia recently argued that the family home should be thought of as the fourth pillar of the retirement savings system. So owning a home is really quite a valuable thing for retirees to do.
Lyndon: Obviously because of the reduced expenses. Rent, for example.
Benedict: Absolutely. Yeah so for example if you think about your house or a house if you own one and the rent that you would have to pay if you didn't own the house, in economics we call it imputed rent. So the imputed rent that you receive from owning a property, let's say an average house price in Melbourne is, say $650,000, you'd have to ask the question what would it cost me to rent that, and it might be $20,000 or $30,000. So if you didn't own that house outright but you wanted to rent it you would also need another $20,000 to $30,000 of extra income in retirement just to be able to live in the way you're accustomed to. So it's a really important part of people's prosperity in retirement.
Lyndon: Just before we delve too much further into the whole housing side of things, there are actually some circumstances in which people already can access their super. That's right, isn't it?
Benedict: Absolutely. There are quite a few in fact.
Lyndon: As in access early I should have said.
Benedict: Access early. So, I mean, superannuation, when I say its sole purpose, is retirement, the primary where to access superannuation is to retire and that means typically reaching 65 years of age. That's the first and most straightforward, we call it a condition of release to use technical terms. But there are a range of other ways to access superannuation before reaching 65. One, many may be familiar with this, called a transition to retirement pension and that is taking a pension once you reach preservation age but you can still be working, so you're not technically retired. Preservation age is related but different to retirement. Generally, it's five years younger.
Lyndon: Okay and so then back to some of those conditions of release.
Benedict: Primarily they are around financial hardship or financial distress. Financial hardship is a particular condition of release. It's a limited condition of release. It's available to those who have been receiving government income support for a continuous six-month period, typically unemployment benefits. But there are a number of other payments that qualify and the process would be to go to Centrelink or the Department of Veterans Affairs, receive a particular piece of paperwork, provide that to the fund and then the trustee of UniSuper or any other superannuation scheme judges whether or not an under trust principles of the person has met the definitions of financial hardship. So it is a genuine financial distress, it's not what you'd consider to be just a way to access superannuation, not for the sake of it.
Lyndon: So if you wanna pay off your credit card, probably not gonna happen.
Benedict: Probably not. Although financial hardship, people who have credit card debts and have all those other criteria like being unemployed for six months let's say, credit card debts are often regrettably a huge problem and some monies do get released from superannuation in certain circumstances to pay down debts and some which can alleviate financial pressures of those who are in severe distress.
Marta: Are there any other circumstances where people may be able to access super that don't fall under sort of financial hardship category? Like if your circumstances change in life or something.
Benedict: Yeah certainly. There is another one. Now financial hardship is judged by the trustee of the superannuation fund. There is another one, we call it compassionate grounds and that's not judged by the trustee. It's adjudicated by the Department of Human Services. Now compassionate grounds is available for a handful of different arrangements. Again they are to do with certain financial distress, so compassion's involved here. For example medical expenses, disability, particularly on modifying home, motor cars, those sorts of things. Palliative care particularly for a dependent, funeral expenses for a dependent, if you're really in extreme distress and there is compassionate grounds for that, the Department of Human Services can review the case and they'll provide an authority for superannuation fund to release a specified amount of money. Worth noting also doesn't necessarily mean the money's tax-free, it is still taxable. There is another one as well given we have been talking about housing, is mortgage stress and it generally is a fairly serious situation of mortgage distress because there's a whole lot of protections already in credit law that allow people in mortgage distress or in arrears to apply for special rules to banks and lenders directly.
So this is once you've gone beyond those stages and there's a risk of foreclosure on a mortgage and a property being sold off from underneath you, you may be eligible to apply, to relieve some money to satisfy lenders. Again that's a very limited thing, but superannuation can be used for housing just a little bit but not really as we're talking about first time buyers or deposits from this amount of money.
Marta: And probably I would say that we're just giving our listeners a broader overview of the circumstances under which you can actually access your super if you really need to.
Lyndon: Benedict, also terminal illness, if I'm not mistaken, is a condition of release as well.
Benedict: Yes it is.
Lyndon: What's the go there?
Benedict: And in those circumstances, funds can release the full value of the person's superannuation. There may also be insurances involved in that, typically the idea is to make a payment to your family for medical expenses before death. Now I'll point out I'm not a financial planner, but financial planners look at these issues and ponder whether or not it may, in fact, be more tax efficient to wait until a person in terminal illness actually passes away because there are different tax consequences of accessing money at different times.
Marta: And if you wanted to learn more about those sort of taxation implications or other information where would be the best spot to go?
Benedict: There's some general information available, but again in these circumstances, it's often a good idea, this is an area where I would seek advice. They've tried to align the differences in receiving a death benefit and a terminal illness payment but there are a whole lot of things that people would do and can consider to structure their affairs at a really difficult time. So I sort of think this is one of the key areas in life where you would probably seek specialist advice to make sure you do everything you can to help set up a family for after the death of maybe a major breadwinner in the family.
Lyndon: And actually one of the first ports of call for people in those circumstances, Benedict, is actually our claims area here at Unisuper. So if you are in that particular situation we encourage you to call our claims area on 1800 UCLAIM which is 1800 825 246.
So Benedict, just going back to the housing discussions that are happening in the public sphere at the moment, do we have any clarity on whether this time around we might be moving forward with something or...I mean these ideas come up from time to time anyway.
Marta: They go around circles all the time.
Lyndon: Yes. It's not like it hasn't been brought up before.
Benedict: No. Ideas about using superannuation to pay for housing for first-time buyers have been around for at least 25 years. Both sides of politics at one stage or another have had a policy to that effect. None of the policies have ever really come to any fruition so far because it does raise many challenging issues such as the sole purpose of superannuation. There's a lot of discussion about this currently. I haven't seen any concrete plans. There have been rumors that if there were a policy it would allow people to use say three years of contributions to be matched with their own savings over a three-year period with some caps on it. And then that money could be accessed in a certain way to pay for a housing deposit. So if any of these policies were to come to fruition and you're currently looking to buy a house right now you probably note that this policy, if it were to come into place, might be three, four, five years away before you actually could become a beneficiary of any of these policies.
I might point though, the budget's only a few weeks away. We're recording this interview in mid-April , a few weeks before the budget which is the second Tuesday of May, the 9th of May, so we don't really know at this stage what's going to be in the budget and the fact this is still up in the air suggests that I don't know if the government actually has concrete plans to do anything about this yet. The treasury says things like you can't solve the housing problem in one budget. So whether or not this budget has a policy on this we may see it in future budgets or it may not resurface at all as an idea. But it's something that's constantly discussed.
Lyndon: And so, Benedict, with this idea of taking money out of the super system for housing say, one side of the argument seems to be that if that money is taken out of super, it's reducing the ability of your super to grow as much over time as it would otherwise have done but if members did take money out for a house, isn't that like two sides of the same coin? Wouldn't the house be increasing in value?
Benedict: The two issues are very closely related as you say. So say a 30-year-old took some money out of superannuation. They would have at least 35 years until 65 for that to compound towards a retirement lump sum and then possibly also draw that down another 25 years or 30 years. So it could be in the superannuation system for 50 or 60 years. So when you look at the compound returns they could be quite substantial. However, yeah, as you say the alternative use of the money, if it were to acquire something else that is a financial type of investment such as a house, itself, if all goes well, would go up in value as well. So the two trade off against each other to some extent.
Lyndon: Well as is so often the case with super they don't seem to be very many simple answers out there, but Benedict Davies, thank you so much for joining us today on Super Informed Radio.
Benedict: Thank you.
Rob: Well some interesting insights there from both Benedict and the interviews on the street there. And I mean the biggest takeaway really is the fact that the rules around having access to your super are pretty stringent. Of course, if you do find yourself in a situation where you think you might be eligible to access your super early, of course, head to our website for more information. The rules around super do change so it's important to keep your finger on the pulse.
Marta: Yeah so keep an eye out for the next edition of Super Informed e-news coming out in May for a deep dive into this year's federal budget announcements including anything that might relate to super. You can simply jump onto MemberOnline and update your email address to have it delivered straight to your inbox.
Lyndon: And as always you can subscribe to us and listen to past episodes of Super Informed Radio by finding us on iTunes and SoundCloud or by going to unisuper.com.au/podcasts.
Rob: And finally if you've got any questions or want more information about anything you've listened to today, you can write to us at firstname.lastname@example.org.
Marta: Thanks for listening.
Lyndon: See you next time.