Gaining early access to superannuation

19.57 There are three key forms of superannuation benefits:

• preserved benefits—which must be retained in superannuation until ‘preservation age’;^[59]
• restricted non-preserved benefits—which cannot be accessed until an employee meets a condition of release; and
• unrestricted non-preserved benefits—which do not require an employee to meet a condition of release and may be accessed upon request.

19.58 Generally, superannuation funds cannot be accessed before the member reaches the required ‘preservation age’. However, s 79B of the Superannuation Act provides limited grounds for the early release of preserved or restricted non-preserved benefits, on the basis of severe financial hardship or compassionate grounds. These grounds are defined in the SIS Regulations.^[60]

19.59 The grounds for early release are limited in order to reflect the policy balance sought: on the one hand, the overriding policy objective that superannuation benefits are to be preserved to provide income for retirement; and, on the other, the recognition that certain exceptional circumstances may justify the early release of benefits to a member.

19.60 In light of concerns about the impact of family violence and financial hardship on victims, it may be appropriate for a victim of family violence to gain early access to superannuation, for example to leave a violent relationship or take measures to ensure their safety. However, stakeholders such as Women’s Legal Services NSW argued that victims of family violence should be entitled to early access to superannuation only as a ‘last resort’ and that

instead, access to adequate financial support should be improved by addressing issues with social security, employment and victims’ compensation, including access to legal services that can be necessary to access these funds.^[61]

19.61 In its submission, the Association of Superannuation Funds of Australia (ASFA) emphasised that it was:

supportive of the need for the Australian community to more broadly support means by which impacted individuals can obtain relief and escape the circumstances of domestic violence. These other means should emerge from the social security framework where urgent and immediate funding could be provided to victims.^[62]

19.62 Consequently, ideally, as outlined at the beginning of this chapter, social security should be the system through which victims of family violence are able to access immediate financial support.^[63]

19.63 In addition, other concerns include that:

• the purpose of early release of superannuation to victims of family violence—namely increasing safety through improved financial independence and security—may be frustrated if the funds released were accessed at the instigation of, or by, the person using family violence. In particular, in such circumstances early release may deplete a victim’s retirement funds, which may otherwise have been the only source of funds a victim could protect;^[64] and
• women, in particular, are already significantly disadvantaged in the accumulation of adequate superannuation by virtue of the gender pay gap and broken and casual employment histories.^[65] In light of this disadvantage, and given that women experience family violence at higher rates than men, early access to superannuation risks compounding the inadequacy of a female victim’s superannuation benefits on retirement. ^[66]

Severe financial hardship

19.64 The Superannuation Act and SIS Regulations provide for early release of superannuation benefits on the grounds of ‘severe financial hardship’.^[67] Fund trustees are responsible for determining the release of benefits on this basis. Different conditions for early release apply, depending on the age of the member, in particular whether the member is under or over ‘preservation age’.^[68]

19.65 To satisfy the ground of ‘severe financial hardship’ under regs 6.01(5)(a) and 6.01(5A) of the SIS Regulations, applicants (if under preservation age) must prove that they:

• have been receiving ‘Commonwealth income support payments’continuously for the past 26 weeks; ^[69]
• were still in receipt of those payments at the date of the written evidence provided in support of the application (which must not be more than 21 days prior to the application);^[70] and
• are unable to meet reasonable and immediate family living expenses.^[71]

19.66 If these requirements are satisfied, the trustee may release a lump sum of between $1,000 and $10,000.^[72]

19.67 To satisfy the ground of ‘severe financial hardship’ under reg 6.01(5)(b) of the SIS Regulations, applicants (if they have reached preservation age plus 39 weeks) must prove that they:

• have been receiving ‘Commonwealth income support payments’ for a cumulative period of 39 weeks after they reached their preservation age; and
• were not ‘gainfully employed on a full-time, or part-time, basis on the date of the application for cashing of his or her benefits, or restricted non-preserved benefits, in the entity’.^[73]

19.68 Where a person satisfies these requirements, there is no limit on the amount that can be released.^[74]

Qualifying period

19.69 The ALRC considers that the current requirement that applicants under the preservation age must have been receiving a Commonwealth income support payment for 26 weeks as part of satisfying the ground of ‘severe financial hardship’, under reg 6.01(5)(a) of the SIS Regulations, is unnecessarily restrictive.

19.70 In 2002, the Senate Select Committee on Superannuation and Financial Services recommended that the Australian Government should consider extending the criteria that govern early access to superannuation. It expressed the opinion that there was merit in increasing the flexibility of the current requirement for 26 weeks continuous receipt of income support payments to 26 out of a possible 40 weeks.^[75]

19.71 In light of the particular issues faced by victims of family violence in obtaining and remaining on continuous income support, many of which are discussed in more detail in Chapters 5–8, the ALRC is concerned that the current formulation may operate to exclude victims of family violence from accessing early release on this ground. In particular, as stakeholders have emphasised, it may be difficult for victims of family violence to demonstrate continuous receipt for 26 weeks where payments have been stopped or suspended for a range of reasons.^[76] The Commonwealth Ombudsman’s submission provided a number of examples of cases where a person may experience severe financial hardship but fail the 26-week test, including the following case study.^[77]

19.72 Such difficulties may also arise where victims are not previously eligible for social security payments due to income or assets tests, as they may only be eligible to receive them once they are no longer considered to be a ‘member of a couple’ and their income and assets are no longer pooled. Accordingly, victims may have to wait at least 26 weeks to become eligible for early access to superannuation during the period when they are suffering the most severe financial hardship.^[78]

19.73 Submissions opposing amendment to the 26-week test argued that, doing so, would potentially increase the ease with which superannuation may be accessed early, thereby eroding the overarching goal of preservation of superannuation benefits. For example, ASFA submitted that the appropriate balance between the need to preserve a superannuation benefit with the recognition of limited appropriate circumstances for the grant of early access had already been achieved. It expressed concern that an alteration of this test may allow ‘a person to qualify for early release where they are currently in employment’.^[79]

19.74 However, the ALRC is of the view that the policy intention underlying the test—requiring evidence of a person’s dependence on welfare payments to support a claim of severe financial hardship—is not achieved where people, whose payments have been interrupted but were in no better financial position than those in continuous receipt of income support, are denied early access to their superannuation benefits.^[80]

19.75 Accordingly, and in line with the recommendation made by the Senate Select Committee on Superannuation and Financial Services, the ALRC recommends that reg 6.01(5)(a) of the SIS Regulations should be amended to require that an applicant, as part of satisfying the ground of ‘severe financial hardship’, has been receiving a Commonwealth income support payment for 26 out of a possible 40 weeks. This amendment would still provide an objective financial hardship test but is likely to result in a more ‘consistent and sensitive approach’ in relation to those seeking early access to their superannuation, including people experiencing family violence.^[81]

19.76 The ALRC did not receive any feedback from stakeholders indicating that there are particular difficulties for a person over the preservation age experiencing family violence in meeting the requirements under reg 6.01(5)(b) of the SIS Regulations as part of satisfying the ground of severe financial hardship.

Definition of Commonwealth income support payments

19.77 The definition of ‘Commonwealth income support payments’ is the same with respect to the requirements for applicants under and over the preservation age. The definition includes income support payments, supplements and pensions, but excludes Austudy and Youth Allowance paid to a person who is undertaking full-time study.^[82]

19.78 The ALRC considers that recommending amendment to the definition of ‘Commonwealth income support payments’ is beyond the scope of the Terms of Reference for this Inquiry, given its systemic impact on people across the social security and superannuation systems.^[83]

19.79 The policy underlying exclusion of some of these payments was, in part, that they were designed to assist in meeting study and other costs, the intention was not to provide full financial support and, where it involves a study related cost, individuals chose to undertake a course of study having regard to the financial consequences of doing so. As a result, a number of stakeholders opposed any amendment to the definition.^[84] Stakeholders also opposed amendment on the basis that recipients of excluded payments are generally likely to have ‘low levels of superannuation and therefore any early lump sum releases will have a significant impact on the total level of superannuation’.^[85]

19.80 However, the ALRC notes that, in 2002, the Senate Select Committee on Superannuation and Financial Services identified the potential need for people on these types of payments to be eligible to apply for early access on the basis of severe financial hardship,^[86] and a number of stakeholders reiterated the same view throughout this Inquiry, submitting that the exclusion is ‘unfair and unreasonable’.^[87]

Guidance material

19.81 The trustees of a superannuation fund are responsible for determining the release of benefits on the basis of severe financial hardship. However, APRA provides guidance to trustees across a range of areas, including in relation to applying the ground of severe financial hardship. APRA is progressively issuing Superannuation Prudential Practice Guides (SPG) to replace existing Circulars, Guidance Notes and other materials. Guidance in this area is currently provided by Superannuation Circular No I.C.2 Payment Standards for Regulated Superannuation Funds.^[88] However, in December 2011, APRA proposes to issue a final version of a draft Superannuation Prudential Practice Guide, SPG 280—Payment Standards for Regulated Superannuation Funds and Approved Deposit Funds released for consultation in August 2011.^[89]Neither the current Circular nor the draft SPG provide any direction for trustees in determining whether, for example, an applicant is unable to meet reasonable and immediate family living expenses.^[90]

19.82 The ALRC understands that the SPGs are designed to provide high level advice to trustees, in this instance to assist in determining whether an applicant satisfies the ground of severe financial hardship.^[91] However, the ALRC considers there is a need for guidance material that provides trustees with more specific guidance in determining what constitutes a ‘reasonable and immediate family living expense’ for the purposes of the second part of the severe financial hardship test; and the impact family violence may have on determining whether an applicant is unable to meet reasonable and immediate family living expenses.

19.83 The ALRC therefore recommends that APRA work cooperatively with AIST, ASFA and other relevant bodies to develop guidance for superannuation trustees in the form of model guidelines which include information on, for example, what constitutes reasonable and immediate family living expenses.^[92] The ALRC considers such guidance could:

• contain a definition of family violence;^[93]
• explain the nature, features and dynamics of family violence;
• indicate that it may not be appropriate to consider a family’s combined resources and outgoings in determining whether an applicant is suffering severe financial hardship in circumstances of family violence;^[94] and
• indicate that what constitutes a ‘reasonable and immediate living expense’ may differ in cases involving family violence, for example, where an applicant needs to flee their home.

19.84 In addition to developing the guide, the ALRC suggests that AIST, ASFA and other relevant bodies should encourage superannuation funds to provide staff involved in assessing applications for early release of superannuation on the basis of severe financial hardship, training in relation to the effect family violence may have on determining whether an applicant is unable to meet reasonable and immediate family living expenses.

Time limit

19.85 The Terms of Reference for this Inquiry require the ALRC to focus on those experiencing family violence. However, throughout this Report the ALRC has been cautious about suggesting procedural steps or imposing time limits with respect to applications involving family violence where this would create a two-tier system, or where it may provide an incentive to disclose family violence as a means to obtain a benefit—in this case, faster early access to superannuation funds.

19.86 There is currently no time limit within which fund trustees must process applications for early release on the basis of severe financial hardship. While an application for early release of superannuation made by a victim of family violence is likely only to be made in extreme cases, this is also the case for other people making applications for early release of superannuation. As a result, the period of time before any applicant can access the funds (if early release is approved) should be as short as possible. Stakeholders have submitted that applications should be processed as quickly as possible and that, while some delays may arise from the need to obtain proof of eligibility and of identity, such claims are ‘given priority’.^[95] In light of this, and the ALRC’s desire to avoid creating a two-tier system, the ALRC considers that no legislative or regulatory changes could usefully be made in relation to facilitating the prompt processing of applications for early release in circumstances involving family violence.^[96]

Compassionate grounds

19.87 The SIS Act and SIS Regulations provide—in addition to severe financial hardship—for the early release of preserved benefits and restricted non-preserved benefits on specified compassionate grounds.^[97]

19.88 A person may apply to DHS for early access on compassionate grounds where the benefits are required for a category of narrowly defined expenses:

• medical treatment costs or medical transport costs (in either case, of the person or a dependant);
• mortgage assistance to prevent the foreclosure or sale of the person’s principal place of residence;
• costs associated with modifying the person’s principal place of residence, or vehicle, to accommodate the person’s special needs relating to a severe disability (of the person or a dependant);
• costs associated with palliative care;
• costs associated with a dependant’s palliative care, death, funeral, or burial; or
• expenses in other cases where APRA has determined that the release is consistent with one of the foregoing grounds.^[98]

19.89 DHS determines applications for early release on compassionate grounds. DHS (or more specifically, the assessor) must be satisfied that the applicant’s circumstances fit into one of the specified grounds and that the applicant lacks the financial capacity to meet the expenses without a release of benefits.^[99] The SIS Regulations also require an assessor to have regard to certain other matters before they can be satisfied that a release is required on the medical treatment, medical transport or mortgage grounds outlined above.^[100]

19.90 If a person satisfies the requirements, DHS may release a single lump sum of an amount reasonably required, taking account of the ground upon which the application was made and the applicant’s financial capacity.^[101]

19.91 The DHS Guidelines for Early Release of Superannuation Benefits on Compassionate Grounds (Guidelines) provide guidance to DHS assessors.^[102] The Guidelines do not currently refer to the impact family violence may have, for example, on whether an applicant lacks the financial capacity to meet the relevant expenses without a release of benefits. The Guidelines provide that an assessor is required to assess capacity in light of the evidence provided by the applicant, that assessors may require further information from the applicant, and that the evidence should be ‘sufficient to satisfy a reasonable person that the person has met the conditions for release’.^[103]

19.92 Throughout this Inquiry, stakeholders have commented on two key areas in relation to early release on compassionate grounds. The first is the current administration of the compassionate grounds—the ALRC recommends additional training and guidance in this regard. The second relates to options for reform of the compassionate grounds—the ALRC does not recommend amendment to existing compassionate grounds or creation of a new ground to account for early release for purposes stemming from family violence.

Administration of compassionate grounds

19.93 Administration of early release of superannuation on compassionate grounds was transferred from APRA to DHS following legislative changes in September 2011.^[104]

19.94 Throughout the Inquiry a number of stakeholders expressed general concerns about the administration of compassionate grounds. For example, the Ombudsman expressed the view that assessment of applications for early release of superannuation on compassionate grounds ‘should involve processes capable of identifying and responding to vulnerable applicants’ and that ‘the process should have the flexibility to identify vulnerable applicants at any stage and ensure that a single assessor is responsible for their application’.^[105]

19.95 DHS has advised that upon transfer of responsibility for administration, the assessment team was transferred from APRA into DHS and that while there is a ‘sense of continuity in the management of the program’, a number of ‘service delivery improvements’ are planned.^[106] The improvements will in part draw upon the experience and resources of the broader DHS portfolio to provide financially vulnerable customers, including those seeking early access to superannuation, with increased and coordinated support and access to services as well as case management.^[107]

19.96 At the outset, the ALRC acknowledges that the purposes for which an applicant may seek early release on compassionate grounds are narrow and involve the exercise of very limited discretion by DHS. The ALRC considers that many of the service delivery improvements planned by DHS in this area appear positive. However, where a compassionate ground may otherwise be made out, the ALRC considers that the Guidelines and associated training may be two areas in which the administration of compassionate grounds may be amended to account for applicants experiencing family violence.

Time period

19.97 The Service Delivery Agreement between APRA and DHS requires applications for early release on compassionate grounds to be assessed by DHS within 10 business days; however ‘this turnaround time can increase in busy periods’.^[108] DHS also administers ‘prioritisation criteria which allow for applicants in certain circumstances to have their applications assessed within 48 hours of prioritisation being approved’.^[109]

19.98 Of the complaints the Ombudsman’s office investigated in 2010 about ‘processing of applications for approval of early release of superannuation on compassionate grounds’, the Ombudsman ‘found that … delay was attributed to two main factors’—‘complainants reported difficulty in understanding or obtaining the documents’ required, and ‘APRA’s administrative arrangements concerning the order in which applications are assessed and reassessed can cause delays in processing’.^[110]

19.99 The ALRC suggests that, in the course of developing and revising material made available to customers wishing to make an application for early release, or with respect to the application forms themselves, DHS should consider any changes that could usefully be made to more clearly outline the process and documents required in support of an application for early release. The ALRC considers that the DHS case management approach and prioritisation criteria may assist in addressing some stakeholder concerns with respect to administrative arrangements and associated delays.

Guidelines

19.100 The second issue arising in relation to the current administration of the compassionate grounds relates to the content of the Guidelines. The Guidelines do not currently make any reference to the impact that family violence may have, for example, on whether an applicant lacks the financial capacity to meet their expenses without an early release of benefits. The ALRC considers that DHS should amend the Guidelines to ensure that they:

• contain a definition of family violence;^[111]
• explain the nature, features and dynamics of family violence; and
• indicate that it may not be appropriate to consider a family’s combined resources and outgoings in determining whether an applicant lacks the financial capacity to meet the expenses without a release of benefits in circumstances of family violence.^[112]

Training

19.101 DHS has advised that in late 2011 and early 2012, it will review and implement training of assessors in order to ensure sensitive and appropriate customer engagement:

Recently we have rolled out training around disability awareness, mental health issues … by extension, we could look at rolling out training for family violence issues.^[113]

19.102 The ALRC considers that the amendment of the Guidelines to include family-violence related considerations, case management and new administration arrangements provide a useful opportunity to introduce consistent, regular and targeted training in this respect.^[114] The ALRC recommends that DHS staff involved in assessing applications for early release of superannuation on compassionate grounds should be provided with training in relation to family violence, including: the potential impact on applicant’s circumstances; and responding appropriately to applicants who disclose, or who are experiencing, family violence.

Options for reform

19.103 The ALRC does not consider it is appropriate to include family violence as a purpose for which an applicant may apply for early access on compassionate grounds; or to create of a new ground of early release on the basis of family violence.

19.104 Broadly speaking, several stakeholders were supportive of the inclusion of family violence as an additional ground for early release of superannuation benefits on compassionate grounds, emphasising the importance of early access to financial resources to enable people experiencing family violence to remove themselves from situations of harm.^[115] However, it was unclear whether stakeholders supported the inclusion of family violence as a purpose for which early access to superannuation on compassionate grounds may be required, or the establishment of an entirely new and separate ground of family violence which, because of its nature, would be considered a compassionate ground for early release.

19.105 Many stakeholders however reiterated the overarching policy concerns as the basis for opposing the inclusion of an additional ground, emphasising the importance of preservation of superannuation benefits until retirement, and argued that this policy objective should prevail over expanding grounds for early release.^[116]

19.106 The ALRC notes that if reg 6.19A of the SIS Regulations were to be amended, the ALRC considers the preferable approach would be to add family violence to the existing list of purposes for which an applicant may apply for early release on compassionate grounds. In doing so, the ALRC considers that any such ground should be subject to the same eligibility criteria as the existing purposes.^[117] However, careful consideration of the types of information applicants might reasonably be required to provide to DHS in support of their application would be necessary,^[118] and any evidentiary requirements introduced

should take into account the difficulties that people experiencing family violence may have in disclosing this fact and the types of evidence that might realistically be available to them in the situation.^[119]

Other issues

Contacting applicants

19.107 In situations involving family violence, an applicant may have made an application for early release of superannuation for the purposes of preparing to leave a violent relationship. In such circumstances, the safety of the applicant experiencing family violence may be jeopardised in circumstances if the superannuation fund or DHS contacts them in relation to their application.

19.108 In the course of this Inquiry stakeholders advised that applicants are contacted using the ‘contact details nominated’, which includes a preferred telephone number and a postal address that can be separate from the residential address.^[120] AIST emphasised that fund staff ‘do not acknowledge that an application has been submitted unless it has confirmation that it is speaking to the member concerned’.^[121] AIST also advised that most superannuation fund ‘administration systems facilitate the inclusion of a “flag” on the member’s account to indicate special treatment when the account is accessed in the future’.^[122]

19.109 However, ASFA indicated that it is difficult to suggest a mechanism that would guarantee the safety of members experiencing family violence as there is ‘no guarantee as to who is controlling the application’, the person using or experiencing family violence.^[123]

19.110 The ALRC makes no recommendations in this regard, but suggests that any family violence-related training provided to DHS and superannuation fund staff could assist in raising awareness about the potential use of existing processes such as identity verification and administrative flags where family violence is identified.

Data collection

19.111 The guiding principles developed in the course of the Super System Review include principles with respect to the need for high quality research and data.^[124] The ALRC understands that as part of the Stronger Super reforms APRA will be ‘collecting greater levels of data’.^[125]

19.112 Accordingly, given the importance of comprehensive data in providing a sound evidence base upon which the Government can make future policy in this area, the ALRC suggests that superannuation funds, AIST, ASFA, APRA and DHS should consider ways in which early release data could be captured in order to provide a ‘better understanding … of whom and why members are trying to access early release of their benefits’.^[126] This would be particularly useful in the course of any future consideration of whether family violence should be added to the existing list of purposes for which an applicant may apply for early release of superannuation on compassionate grounds.