On Monday 20 April 2020, applications for the early release of superannuation via the Australian Taxation Office were opened nationwide, in response to the massive economic downturn and job losses resulting from the COVID-19 pandemic. More information of the new conditions for the early release of super can be found on the Australian Taxation Office website.
Traditionally, the door to accessing superannuation funds before retirement has been a narrow one, limited “compassionate grounds” or “financial hardship”. The exact meaning and scope of these terms vary amongst super funds, but often include things such as the need for medical treatment, palliative care, making a payment on a home loan or council rates so you don’t lose your home, accommodating for the costs of a disability or covering expenses associated with the death, funeral or burial of your dependent.
While the easing of the criteria for the early release of super funds is good news for the close to one million Australians who have registered their interest in accessing their funds early, applicants should carefully consider the potential ramifications, in particular their access to life insurance benefits tied to their super fund. This is especially the case for people out of work due to contracting an illness or suffering from an injury.
Life insurance benefits including “income protection” or “total and temporary disability insurance” and “total and permanent disability insurance” are benefits regularly offered with the cost of a person’s super fund membership and to members who cannot work due to an illness or injury. People holding multiple super funds, may also be surprised to find out that they could have access to multiple insurance benefits across different funds. The criteria of accessing life insurance benefits have not been relaxed in response to COVID-19 and are very dependent on the policy and membership type you hold with your super fund.
An early withdrawal of your super or letting your membership expire with a fund can result in the cancellation of insurance benefits automatically provided by that super. For people suffering from an illness or injury preventing them from working, this could mean losing access to tens to hundreds of thousands of dollars in insurance benefits they may otherwise be entitled to.
It is also important to note that persons qualifying for total and permanent disability insurance benefits are very likely to qualify for an early release of their super funds. When presented the option of accessing super funds using the new relaxed COVID-19 conditions or accessing super funds after qualifying for total and permanent disablement benefits, applicants may stand to significantly benefit from the latter option.
Persons out of work due to an illness or injury should therefore make enquiries regarding their life insurance benefits and obtain legal advice to ensure their rights are protected, before making a decision on when and how to make an application for the early release of their super.
