Highlights

  • In an APRA-regulated fund, the Trustee assesses a hardship application and the member deals with a large organisation.
  • Severe financial hardship is a condition of release administered by the fund trustee, not by the ATO.
  • The ATO's conditions of release guidance sets out the requirements the trustee must be satisfied of before paying a benefit.
  • Where the member's preserved benefit is less than $1,000, the cap works differently, so trustees should check the guidance.

Superannuation is designed to be preserved until retirement, but the law recognises that some people face financial pressure so serious that early access is justified.

For SMSF members, there is an important twist.

Who decides

This is different from release on compassionate grounds, which requires the member to obtain approval from the ATO before the fund can pay.

The two pathways

The rules provide two broad pathways.

Under the first, the trustee must be satisfied that the member has received relevant Commonwealth income support continuously for 26 weeks, was still receiving it when they applied, and is unable to meet reasonable and Immediate Family living expenses.

Under the second, the trustee must be satisfied that the member has reached preservation age, has received relevant Commonwealth income support for a cumulative 39 weeks since reaching preservation age, and was not gainfully employed on a full-time or part-time basis when they applied.

Evidence the trustees should hold

Because the trustees are often the beneficiaries, documentation is crucial.

  • a letter from Services Australia confirming the type of income support and the period for which it has been received;
  • evidence of the member's financial position, such as bills, overdue notices or a statement of expenses, supporting the conclusion that reasonable and immediate family living expenses cannot be met;
  • confirmation that no other hardship payment has been made from the fund in the previous 12 months, where the first pathway is used;
  • a trustee minute recording why the trustees were satisfied the condition was met and how the amount was calculated; and
  • confirmation that the trust deed permits the payment.

Hypothetical example: a member aged 48 has been on JobSeeker Payment continuously for 30 weeks and cannot pay rent and utilities.

Tax and other consequences

A severe financial hardship payment is a Superannuation lump sum and is taxed under the usual rules for lump sums, depending on the member's age and the tax components of the benefit.

Members in genuine difficulty may also wish to explore other support, such as hardship arrangements with lenders or Utility providers, before drawing on super.

Practical considerations for trustees

The auditor will check that any early release was supported by evidence and met the conditions.

The takeaway

Severe financial hardship can allow SMSF members limited access to preserved benefits, but only where strict conditions are met and properly documented.