Guard your super

21 August 2018 | Retirement and superannuation


Critical challenges for super fund members in the accumulation phase are to keep their savings intact and to keep adding to those savings when possible with voluntary contributions.

Australia's $2.6 trillion-plus super savings can present a powerful temptation to obtain some of that money early.

There are basically two instigators of attempts to prematurely access super. There are the members themselves and then there are the operators of illegal early-access schemes claiming to show members how to get around the law.

The most fundamental superannuation rule is that super savings are there to provide retirement benefits – not to subsidise preretirement lifestyles, or to pay pressing personal expenses (with certain exceptions) before retirement.

Generally, super fund members cannot gain access their super benefits before turning 65 or reaching their "preservation age" (at least 55) and retiring.

Members can seek to legally gain early access to their super early on various compassionate grounds, severe financial hardship, terminal illness or incapacity.

Other ways that fund members can legally access early their super are through the new first home super saver scheme and transition-to-retirement pensions. Members taking a transition-to-retirement pension can receive up to 10 per cent a year of the balance in their super pension accounts as a pension upon reaching their preservation age yet before retiring.

Early access schemes

In recent weeks, the tax office has issued renewed warnings about illegal early-access schemes – persistent scams that have blighted superannuation for years – and about the responsibilities of self-managed super fund (SMSF) trustees not to release super prematurely.

A favoured approach of the early-access schemes is to persuade members of large super funds to rollover their super into a new SMSF before taking the savings out of the super system.

Scheme promoters try to convince fund members to access their super money to pay such expenses as a new car, holiday and financial help to their families. In the past, the tax office has warned against using super money to try to prop up small businesses experiencing financial difficulties.

Consequences for SMSF trustees

SMSF trustees should be aware of the possible consequences of allowing early access to super. These include disqualification as trustees, their fund being made non-compliant (with the costly loss of concessional tax treatment), penalties payable by the trustees and prosecution.

Against members' interests

Perhaps the bottom line is that members who prematurely access their super savings are hurting themselves. They are potentially eroding their standards of living in retirement.


Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
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Robin Bowerman, Head of Corporate Affairs at Vanguard Australia, shares investment and personal finance insights gained from over two decades in the finance industry as writer, commentator and editor.

Robin Bowerman