May 7, 2020

Early access to Superannuation

In light of the economic impacts of coronavirus, the Federal Government introduced changes to allow certain individuals1 to apply to access up to $10,000 of their superannuation before 30 June 2019 and up to a further $10,000 for applications between 1 July 2020 and 24 September 2020.

Given that most who apply for early access to their superannuation will be under financial stress, and potentially bankrupted or close to being so, are there any concerns about the timing of the applications or payments?

ACCESS AFTER BANKRUPTCY

The rules around bankruptcy and superannuation payments have not changed. The superannuation benefit received by an undischarged bankrupt will not count as property divisible amongst creditors, and therefore is protected from being realised by their trustee in bankruptcy. If the payment is structured as an annuity or pension, it would form part of the bankrupt’s income and be liable for contribution if the total of the bankrupt’s income exceeds the relevant thresholds. However, it is unlikely that the early access payments will be structured as annuities or pensions, and therefore unlikely that the payment would form part of the bankrupt’s income.

Access before bankruptcy

The story is different for those who access their superannuation early, and are subsequently bankrupted.

In that case, the protections offered for superannuation payments do not apply. If the individual accesses their superannuation benefit (under the early access arrangements or under any other benefit payment provisions) and is subsequently bankrupted, where they continue to retain part or all of those payments, those payments will be available to their trustee in bankruptcy.

Because access will generally be driven by a need to meet expenses, for many it is likely that the amount accessed will be applied shortly after receipt by the member. For those on the brink of bankruptcy who might be considering access with a view to not applying those funds immediately, but rather looking to apply the funds at some time in the future, it may be worth considering whether the benefit of accessing their superannuation will be lost if they are subsequently bankrupted and those accessed funds are required to pass to their trustee in bankruptcy

If your clients are considering applying for early access, the impact of a subsequent bankruptcy should not be ignored.


1Individuals must be eligible to apply. For example, a citizen or permanent resident of Australia and New Zealand must be in one of the following categories:

  • Unemployed.
  • Eligible to receive one of the following: 
    • jobseeker payment
    • youth allowance for jobseekers (unless undertaking full-time study or a new apprentice)
    • parenting payment (which includes the single and partnered payments)
    • special benefit
    • farm household allowance.
  • On or after 1 January 2020 either: 
    • made redundant
    • working hours were reduced by 20% or more
    • sole trader whose business was suspended or there was a reduction in turnover of 20% or more.