Super and Mortgage Arrears – Can You Access Your Super?
Superannuation is generally preserved until you meet a condition of release, but there are circumstances where you can apply for early access.
One of these is where you are at risk of losing your home because of mortgage arrears or other qualifying debts.
Accessing super to prevent the loss of your home
You may be able to access your super on compassionate grounds where you are facing foreclosure or a forced sale of your principal place of residence.
The amount that can generally be released to prevent foreclosure by a mortgage lender is limited to:
three months of mortgage repayments; plus
12 months' interest on the outstanding loan balance.
For example, if your mortgage repayments are $1,200 per month and 12 months' interest on the outstanding loan is $9,600, the maximum amount that could be requested is:
3 × $1,200 + $9,600 = $13,200
However, there are strict eligibility requirements and the amount released cannot exceed what is necessary to prevent the foreclosure.
What circumstances can qualify?
Generally, you must be legally responsible for the relevant debt and the property must be your principal place of residence.
You will also need evidence that the home is at risk of being sold or repossessed. For a mortgage, this generally includes a default notice or equivalent notice from the lender.
Importantly, you must also demonstrate that you do not have the capacity to pay the amount required to prevent the sale.
The rules can also apply in certain circumstances involving overdue council rates or a court-authorised sale of your home.
What evidence will you need?
The ATO requires supporting documentation with an application.
For mortgage arrears, this can include the lender's default notice and current information from the lender confirming the amount outstanding and the amount required to prevent the sale.
The exact documentation required will depend on your circumstances.
Superannuation reforms – protecting your retirement savings
The Government is also proposing a range of reforms aimed at strengthening protections for superannuation members.
These proposals follow the collapse of the Shield and First Guardian Master Funds, which affected almost 12,000 people and around $1 billion of retirement savings.
The proposed reforms include measures to strengthen protections around financial advice fees, improve trustee governance and provide additional protection where members suffer losses because trustees have failed to meet their obligations.
What about SMSFs?
The Government has also announced proposed measures affecting self-managed superannuation funds (SMSFs).
These include:
giving the ATO greater powers to prevent rollovers into SMSFs where there is a well-founded suspicion of consumer harm;
introducing basic trustee knowledge requirements;
requiring SMSFs to maintain uniquely identifiable bank accounts;
strengthening information sharing between regulators; and
aligning the first ATO supervisory levy with the establishment of a new SMSF.
These measures are proposals and should not be treated as current SMSF requirements until legislation is passed and commences.
Think carefully before accessing your super
Accessing super early can provide important financial relief in difficult circumstances, but it also reduces the amount you have available for retirement.
If you are experiencing mortgage difficulties, it is important to understand whether you qualify for compassionate release and what the long-term consequences may be before making an application.
If you are considering accessing your super to help with mortgage arrears or are concerned about the impact of proposed superannuation changes, contact us to discuss your circumstances.
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