Keeping your super intact: It's fundamental

29 April 2019 | Retirement and superannuation


Ideally, investors should begin investing as early as possible in their lives, invest more whenever possible and remain in investment markets for as long as possible.

These fundamentals of sound investment practice should increase your chances of investing success.

Yet super fund members who attempt to illegally gain access to super savings before being eligible are doing the opposite.

And they are reducing their opportunities to save for a satisfactory standard of living in retirement. It is difficult to later rebuild super savings spent on paying pre-retirement expenses.

The tax office, the regulator of self-managed super funds (SMSFs), recently reinforced its warning about participating in illegal early-access schemes. These relentless schemes typically use new SMSFs as a means to obtain super savings initially held in large super funds.

Preservation rules

With limited exceptions, super fund members cannot legally gain access their super savings before turning 65 or reaching their preservation age (55-60) and retiring (or taking a transition-to-retirement pension).

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

And other ways that fund members can legally gain early access to some of their super are through the 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.)

Promoters misuse of SMSFs

Typically, promoters of early-access schemes try to convince members of large super funds to transfer their super into a new SMSF before taking the savings out of super. In such cases, the members wanting to withdraw their super become trustees of the new SMSFs.

Scheme promoters try to convince fund members to use their super money to pay for new cars, holidays and financial help to their families, and to reduce credit-card debt. High fees or commissions paid to promoters further dilute super savings.

Promoters tend to target individuals who are in financial difficulties, perhaps with a poor understanding of super. In some cases, the targeted members may have been eligible to legally gain early access to their super on financial hardship or other limited grounds.

Implications for SMSF trustees

Possible consequences for SMSF trustees allowing early access to super include: disqualification as trustees, personal liability to pay penalties, and prosecution. As well, an SMSF may be declared non-complying, leading to the loss of valuable tax concessions.

Dipping into super

Some members gaining early access to their super do not participate in early-access schemes pushed by promoters. Instead, they illegally dip into their SMSFs from time to time with the hope of not to being detected.

In the past, the tax office has warned, for example, about the use of super to prop up small businesses with financial difficulties. Unfortunately, super saving can be a temptation for owners of a business with cash-flow problems.


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