Superannuation early release on compassionate grounds

Superannuation exists to fund your retirement. The rules that govern it are built around that purpose, and normally you can't touch it until you reach your preservation age and retire.

A terminal diagnosis changes what's possible. There are two separate pathways that allow early access to super when someone has a terminal illness. They work differently, and you may be able to use both.

What is the terminal illness early release pathway?

This is the most significant pathway. If two registered doctors have certified that the illness is likely to result in death within 24 months, the super fund can release the entire account balance as a tax-free lump sum.

At least one of the two must be a specialist working in the area related to the illness, so this does not have to be two specialists. They can certify jointly or separately, and they complete forms confirming the diagnosis and prognosis. The certification runs for 24 months from the date of signing, and the release needs to happen inside that period. Your super fund can tell you what it needs and will have its own forms.

Once the fund receives the certification, the release is usually processed within a few weeks. The money goes directly to the person with the diagnosis, not to their estate or beneficiaries.

This is separate from life insurance inside super. You can apply for both the terminal illness early release of the super balance AND any life insurance or TPD claim on the same account.

To apply, contact your super fund directly and ask for the terminal illness early release process. Each fund has its own forms, but the certification requirement is standard across all regulated funds.

What is the compassionate grounds release pathway?

Compassionate grounds is a separate, smaller release mechanism. It doesn't require a terminal prognosis. It applies to specific, defined situations where someone needs money for essential expenses they can't afford any other way.

The grounds most relevant during a serious illness are:

• Medical treatment: to pay for treatment that is not available through the public health system and has been approved by a treating specialist
• Medical transport: to pay for transport to access that treatment
• Palliative care: to pay for palliative care for yourself or a dependent
• Modifications to home or vehicle: to accommodate a disability caused by the illness

Compassionate grounds release is administered by the ATO, not by the super fund. You apply through myGov, and the ATO assesses eligibility. If approved, the ATO instructs your super fund to release the specified amount.

The amount released is limited to what's needed for the specific expense. It is taxed as a super lump sum rather than as ordinary income, and how much tax applies depends on your age and on the components of your balance. For people aged 60 and over it is generally tax free.

You can apply for compassionate grounds release multiple times for different qualifying expenses.

The order matters, and getting it the wrong way round costs you the money. The ATO can generally only release an amount that has not yet been paid. If you pay a bill from your own savings and then apply to be reimbursed, that amount is gone. The ATO's own worked example is a funeral: a person pays a $4,000 deposit from savings with $8,000 still owing, and only the $8,000 can be released. The $4,000 is not recoverable.

There is one way round it. If you paid the expense by borrowing money, you can generally apply to release super to repay the outstanding balance of that loan.

So the useful sequence is to get the invoice, apply, and pay once the release comes through, rather than paying first and applying afterwards. Where something has to be paid immediately, it is worth asking whether a payment plan or a loan would keep the door open, because a bill paid from savings closes it.

Funeral, burial and death expenses are also an eligible compassionate ground in their own right, and the same unpaid rule applies to them. See arranging a funeral for how that sits alongside the other ways of paying.

How do I apply through the ATO for compassionate grounds release?

Log in to myGov and select the ATO service. Under "Super", look for "Early access to your super". Select "Compassionate grounds".

You'll need to provide:

• Details of the expense (cost, provider, date)
• Supporting documentation (invoice, specialist letter, treating doctor's confirmation)
• Bank account details

The ATO generally processes applications within a few weeks. If the application is approved, they notify your super fund directly.

If you don't have a myGov account or need help applying, call the ATO on 13 10 20 or visit ato.gov.au.

How do I apply to my super fund for terminal illness release?

Contact each fund directly and ask for their terminal illness claims process. You'll need:

• Completed terminal illness certification from two registered doctors, at least one a specialist in the area related to the illness
• Your member details
• Bank account details for the lump sum payment

Some funds have a dedicated claims team for serious illness. Ask for that team specifically, as they're often better equipped to move things quickly.

If the person with the diagnosis has multiple super accounts, consider applying to each fund separately. Each account is assessed independently.

What are the tax implications of early super release?

Terminal illness early release: Tax-free, regardless of age. This is one of the few circumstances where a super payment to someone under 60 is not taxed.

Compassionate grounds release: Taxed as a super lump sum rather than as ordinary income, so it does not push you into a higher tax bracket. How much tax applies depends on your age and on the components of your balance, and for people aged 60 and over it is generally tax free. Your fund may withhold more at the time of payment than you ultimately owe. The ATO sets out the current rates on its early access pages, and an accountant can help you work out what applies to you.

Death benefits: If the account holder dies before making a claim, the super balance will be paid as a death benefit to the nominated beneficiary. Taxation of death benefits depends on who receives the money and the tax components of the balance. This is an important distinction: applying while alive is almost always more tax-efficient.

What if I have superannuation in multiple funds?

Run a check through myGov to find all super accounts linked to the tax file number. It's common for people to have funds they've forgotten about from previous employers.

Each account can be released separately under the terminal illness pathway. There's no rule that limits you to one fund.

For accounts with small balances that were opened through past employment, check whether any insurance cover is attached before claiming the balance. Some older accounts have retained group insurance that may be worth claiming first.

Where do I get help with this process?

This process can feel overwhelming, especially when you're managing everything else at once.

A financial adviser with experience in super can help you understand the full picture, including any insurance attached to the accounts, the tax implications of different pathways, and how to coordinate with the estate planning process.

If cost is a concern, some community organisations and financial counselling services provide free advice on super access. The National Debt Helpline (1800 007 007) can also point you in the right direction.