Superannuation withdrawals spike as living costs smash households

Cash-strapped Australians are dipping into their superannuation accounts to try to avoid losing their homes as interest rates rise, and the trend may worsen.

A surge in early superannuation withdrawals for compassionate reasons suggests cash-strapped Australians are failing to pay soaring mortgage interest rates.

Australian Retirement Trust, which manages superannuation worth more than $240 billion, says its super releases on compassionate grounds are running at a record high, up 68 per cent year on year.

There are only a handful of reasons why super fund members can withdraw super early, the Australian Taxation Office says, and one is “making a payment on a home loan or council rates so you don’t lose your home”.

Others are related to palliative care, death, disability and medical expenses, the most popular source of claims.

Australian Retirement Trust head of advice Anne Fuchs said the fund received 600 compassionate grounds withdrawal requests in March alone, with an average payment near $22,500.

People aged between 30 and 50 made the largest number of claims, she said.

Anne Fuchs is head of advice at Australian Retirement Trust, which has 2.2 million members.

“With many Australians facing cost of living pressures, we’ve seen a big jump in members accessing super on compassionate grounds, which is a last resort for people who are struggling,” Ms Fuchs said.

“Given the rising cost of living and recent interest rate increases, we believe the spike in compassionate grounds claims is from members who are struggling to make ends meet, particularly around increased home loan payments,” she said.

Super withdrawal claims are processed and approved by the Australian Taxation Office. Its latest data shows in 2021-22 there were 56,400 applications made, and 34,400 approved totalling $573 million. Of that, $8.9 million was for mortgages, but it was before the Reserve Bank interest rate rises.

An ATO spokesperson said the compassionate release of super legislation provided “very specific and limited circumstances in which an individual can access their superannuation early to pay for certain unpaid expenses, where those individuals have no other means of paying for the eligible expenses”.

The expenses must relate to the super fund member or a dependant and cover:

• Medical treatment or transport.

• Mortgage repayments to prevent the forced sale of a home.

• Modifying a home or vehicle to accommodate a severe disability.

• Palliative care.

• Expenses associated with death, funerals or burials for dependants.

“Eligible individuals who obtain the required documents to support their application, under one of the above grounds, can apply using ATO Online Services,” the spokesperson said.

“In addition, an individual may be able to access their super directly from their super fund under severe financial hardship provisions.”

However, this hardship provision only applies to people receiving government income support, and super funds say this often rules out people suffering mortgage stress.

The cost of living is forcing some Australians to dig into their super. Picture: iStock

There are concerns early super withdrawals may spike in the months ahead as many home loans revert from low fixed interest rates to variable rates after 11 Reserve Bank increases in a year.

Ms Fuchs said withdrawing super early could have a huge impact later in life, and there were alternative steps available.

“Talk to your bank as the first step about your home loan and credit cards,” she said.

“See if they can negotiate a home loan holiday, adjust your repayment plans and enquire what other resources and services they have to assist you.

“Look at your budget. What costs can you reduce or eliminate? Seek financial advice … there are some amazing free services you can access including Centrelink’s Financial Information Services Officers and Financial Counselling Australia.

Originally published as Superannuation withdrawals spike as living costs smash households