The government is poised to shake up early release provisions for superannuation next

The government is poised to shake up superannuation and early release provisions are in the spotlight, but there are still legitimate ways to access your savings.

In terms of what medical costs can be paid from super before retirement, two registered medical practitioners, of which one needs to be a specialist, must certify the issue.

After hitting wealthy super balances with a planned 30 per cent tax, the government is now poised to make even more changes to superannuation with early release provisions in the spotlight.

Assistant Treasurer Stephen Jones said earlier in the week that, “There are people gaming the system at the moment … superannuation was not set up for cosmetic surgery.”

Recent ATO data shows that $573m was released early from super in 2021-22 including $234m on weight loss, $171m on dental treatment and $45m on IVF.

If the government moves ahead with its proposal to define the objective of superannuation as a vehicle to preserve savings for retirement, then the prospect of being able to access your super early will become even slimmer.

Currently, superannuation law provides a few pathways for people to access up to $10,000 from their super before reaching the normal retirement age, which is 60 for most of us. There are several early release categories that include severe financial hardship, terminal illness and permanent incapacity. There is also a broader category known as compassionate grounds.

All applications for early release of super under compassionate grounds are assessed by the Tax Office and the SIS Act 1994 Reg 6.19A (2) notes the criteria under this method which includes various things such as “to pay for medical treatment or medical transport for the person or a dependant”.

In terms of what medical costs can be paid from super before retirement, two registered medical practitioners, of which one needs to be a specialist, must certify one of the following.

The medical treatment is necessary to: treat a life-threatening illness or injury, alleviate acute or chronic pain, alleviate an acute or chronic mental disturbance, and the treatment is not readily available to the person, or the dependent, through the public health system.

And this is where Labor seems to be hinting at changing the rules. In a recent interview Jones said: “People are trying to abuse the system, and this is not directed at the patients here, it’s directed at the surgeons ... and schemes promoting it, they run the risk of ruining it for everyone else who is doing the right thing.”

Chronic pain definitions are one of the fuzzy areas in early release super rules.

In other words, Labor thinks some doctors manipulate the system by having business processes in place to “certify” medical treatments as being necessary so that the treatment can be performed and the cost met from the patients superannuation account under an early release claim.

And it does not help that the wording of the rules are somewhat fuzzy.

To “alleviate pain” means to make the pain less severe. So how much alleviation is required to meet the early release of super threshold? A bit of alleviation? Or a lot of alleviation?

In addition, the terms chronic pain and acute pain can cover a myriad of conditions. National health advocacy service Health Direct defines chronic pain as: “Pain that lasts for more than 3 months, or in many cases, beyond normal healing time.” This can cover less severe conditions such as migraines through to severe chronic pain due to cancer.

And with acute pain (which is pain that comes on quickly but lasts a relatively short period of time), this can be something as trivial as a bruised arm or severe such complications of surgery.

Overall, it appears that the government is concerned about the large outflow of retirement money via a compassionate pathway and is questioning the legitimacy of some claims. That said, there is still tax payable at 22 per cent for people under preservation age on the withdrawal amount, which must be a minimum of $1000 and a maximum of $10,000.

In addition to early release provisions under medical grounds, there are also financial hardship provisions to allow the early release of super. Under the compassionate grounds rules, people can apply to the ATO to withdraw part of their super to prevent the foreclosure of a mortgage on the family home.

Alternatively, there is a separate provision for ‘severe financial hardship’ which is assessed by your super fund rather than the ATO. Under these rules, the super fund member who is under preservation age plus 39 weeks must show that they cannot meet reasonable and immediate family living expenses and that they have been on continuous government income support payments for at least 26 weeks. One application can be made under financial hardship every 12 months.

If people are suffering medically or financially and wish to withdraw part of their superannuation account to help them get through that period; that seems like a reasonable thing to do. And once they are back on their feet, one would suspect they would try to add back the money they took out of super during their time of need.

On the other hand, it appears there is a segment of people withdrawing super early that goes against the spirit and intention of the early release provisions. But any proposed refinements with these provisions is likely to be an uphill battle for the federal government after Prime Minister Anthony Albanese’s pledge to not make any changes to superannuation before the last federal election.

James Gerrard is principal and director of Sydney planning firm www.financialadvisor.com.au

Originally published as The government is poised to shake up early release provisions for superannuation next