The Government has released for consultation an issues paper with draft proposals for reform of the rules governing the early release of superannuation benefits on compassionate and severe financial hardship grounds.
The paper follows a Review which concluded that the existing arrangements governing early release on compassionate and severe financial hardship grounds remain broadly appropriate. However, the Review also considers that there is scope to change the current arrangements at the margins to ensure they operate as intended.
This consultation seeks views on:
- draft proposals that would relax aspects of the current early release regime and provide more scope for individuals to obtain early release of their superannuation;
- draft proposals to strengthen the integrity of the current arrangements and ensure that superannuation is accessed as a last resort in cases of hardship; and
- proposed changes to the administration of the rules governing early release on compassionate and severe financial hardship grounds.
Proposed changes that would relax aspects of the current regime and provide more scope for individuals to obtain early release of their superannuation
• A new compassionate ground of release should be introduced to allow victims of family and domestic violence to gain early access to their superannuation up to a total cap of $10,000 over a 24 month period. This would supplement existing government and non-government schemes and assist individuals who have experienced family and domestic violence to get back on their feet and begin the process of recovery.
• Compassionate grounds should be extended to include explicit reference to dental treatment being permissible for treatment of a life-threatening condition, or acute and chronic pain. This should be subject to broadly equivalent safeguards and evidentiary requirements that apply to other medical treatment, to the extent possible. This will help ensure that dental conditions are treated in the same way as other medical conditions.
• Compassionate grounds should also be extended to explicitly permit early access to superannuation for the purchase of disability aids and modified vehicles on the basis of certification from a medical practitioner that the aid or vehicle is necessary to accommodate the special needs of the individual or a dependant arising from a severe disability.
• The definition of severe financial hardship should be relaxed so that individuals would be eligible for early release if they have been receiving qualifying Commonwealth income support payments for 26 cumulative weeks out of 40 weeks (rather than 26 consecutive weeks) and meet the living expenses test. The definition of a qualifying income support payment should not change.
• Multiple releases should be permitted on severe financial hardship and family and domestic violence grounds (from $1,000 up to the cap of $10,000 in a 24-month period) so that applicants are not incentivised to withdraw the maximum amount at once.
Proposed changes to strengthen the integrity of the current arrangements and ensure that superannuation is accessed as a last resort in cases of hardship
• The eligibility criterion for release on mental health grounds should be tightened by replacing ‘alleviate an acute or chronic mental disturbance’ with ‘treat a diagnosed mental illness or behavioural disorder’. This will ensure consistency with medical terminology and provide a higher but appropriate threshold for release.
• Early access for overseas medical treatment should only be available for a life-threatening illness or injury, or where a person resides overseas. This change is intended to maintain the integrity of release for medical treatment.
• Upon application for early release, the Regulator should provide information to individuals of alternative support that may be available, relevant to the specific compassionate ground for which the individual is applying. This will provide an additional prompt for individuals to consider access to superannuation to be a last resort.
• Two medical practitioners must certify that the treatment for which early release is being obtained is generally accepted by the medical profession as being ‘clinically relevant’ for the patient’s diagnosed condition. This requirement is intended to provide an additional prompt for practitioners during their clinical decision making.
• To secure early release on medical grounds applicants should be required to obtain certification from a specialist in the field relating to the individual’s injury or illness (rather than a specialist in any field) and one of the two required medical practitioners must have an existing relationship with the applicant. This change is intended to ensure the integrity of the certification process.
• Early release under the mortgage foreclosure ground should only be permitted once every 24 months (rather than annually). In addition, the current evidentiary requirements should be extended so that the lender must certify that the individual should be able to meet their repayments in the future once the arrears are cleared. These changes are to ensure superannuation is only released to address short-term financial hardship rather than facilitating
an ongoing incapacity to finance the mortgage. No changes are proposed to the requirement that a person must be listed on the mortgage title.
• The proposed new family and domestic violence ground for early release should also be subject to a cap of $10,000 per applicant every 24 months as well as a requirement for judicial evidence or two pieces of specific non-judicial evidence. This proposed evidentiary requirement is based on existing requirements of immigration provisions governing visas for individuals suffering family and domestic violence.
• To improve transparency and certainty for the Regulator in administering the rules and for individuals who are applying for early release, the current catch-all provision that allows release on grounds ‘consistent with’ the rules should be repealed. This provision is not necessary if the explicit grounds are extended to include dental treatment and disability aids.
Proposed changes to the administration of the rules governing early release on compassionate and severe financial hardship grounds
• The ATO should assume responsibility for assessing applications for early release on grounds of severe financial hardship (to complement its new responsibility in respect of applications for early release on compassionate grounds). This would create an early release ‘one stop shop’ for consumers. Under this proposal, the ATO would approve severe financial hardship applications and notify funds and applicants concurrently. Trustees would not be obliged to permit early release on severe financial hardship grounds, consistent with current practice. However, reducing the cost of handling these applications is expected to encourage a more standardised approach across the industry of allowing release on these grounds.
• The revised early release rules should be reviewed five years post-implementation, and this review should be informed by more detailed statistics collected by the ATO through its ‘one stop shop’ for early release.