Can Super Provide a Lifeline for Mortgage Relief?
With rising living costs and persistent high-interest rates, many Australians face mortgage stress. For some, early access to superannuation may provide a temporary solution to avoid foreclosure on their homes. This guide explores the conditions under which super can be accessed and the implications of doing so.
Compassionate Grounds for Release
Superannuation can be accessed under compassionate grounds to cover eligible expenses that a client would otherwise be unable to afford. These include:
Medical treatment or transport for severe conditions.
Modifications to a home or vehicle to accommodate disabilities.
Palliative care for a terminal illness.
Funeral expenses for a dependant.
Preventing foreclosure or the forced sale of a home.
Key Points:
The application is administered by the Australian Taxation Office (ATO).
A client can apply online via myGov or request a paper form.
The ATO typically assesses eligibility within 14 days of application.
Standard tax rates apply to the taxable component of any released amount.
Advice Tip: Compassionate grounds cannot be used to prevent foreclosure on investment properties—only the family home qualifies.
Severe Financial Hardship
Accessing superannuation under severe financial hardship requires meeting the following criteria:
For Individuals Below Preservation Age and 39 Weeks:
Must have received an income support payment (e.g., JobSeeker) continuously for at least 26 weeks.
Must demonstrate an inability to meet immediate living expenses, such as mortgage repayments.
Withdrawals are limited to $1,000-$10,000 per 12-month period per super fund.
For Individuals At Least Preservation Age and 39 Weeks:
Must have received income support payments for a cumulative period of 39 weeks since reaching preservation age.
Must not be gainfully employed at the time of application.
There are no cashing limits for individuals meeting these conditions.
Important Note: Applications under severe financial hardship are submitted directly to the super fund, not the ATO.
Comparing Conditions of Release
Feature: Compassionate Grounds
Taxation: Standard tax rates apply
Application Process: TO via myGov
Cashing Amount: Limited to amounts approved by ATO
Frequency Limited to specific expenses
Eligibility Tied to defined expenses
Feature: Financial Hardship
Taxation: Standard tax rates apply
Application Process Directly to super fund
Cashing Amount Max $10,000 per 12 months below preservation age 39 weeks
Frequency Once every 12 months per fund
Eligibility Linked to income support payments
Case Study: Sally’s Journey to Mortgage Relief
Sally, aged 52, faced increased mortgage repayments after her fixed-rate loan expired and was refinanced at a higher interest rate. She also lost her job and has been on JobSeeker for over 26 weeks. Sally’s options included:
Compassionate Grounds:
Accessing three months of repayments and 12 months of interest ($49,350).
Financial Hardship:
Withdrawing $10,000 from her super fund.
By combining these options, Sally accessed $59,350. However, after taxes (at a rate of 22%), her net benefit was $46,290. This lifeline prevented foreclosure and provided financial stability during a challenging period.
Transition to Retirement Pension (TRIS)
For individuals who have reached preservation age but have not fully retired, a Transition to Retirement Income Stream (TRIS) may provide an alternative solution. Key features include:
Regular income payments (up to 10% of the account balance annually).
Lump sum withdrawals permitted only from unrestricted non-preserved components.
Taxation of investment earnings at 15%, similar to accumulation phase.
Advice Tip: The 10% payment limit is not prorated, meaning it applies regardless of when the TRIS commenced during the financial year.
Rebuilding Super After Financial Stress
Accessing super during financial hardship can significantly impact retirement savings due to the loss of compounding growth. Clients are encouraged to:
Re-contribute to their super when in a better financial position.
Explore salary sacrifice or other tax-effective strategies to replenish withdrawn amounts.
