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              Submission from the
Australian Institute of Superannuation Trustees


   Early Access to Super

    Senate Select Committee on
 Superannuation & Financial Services

                  Prepared by
                Susan Ryan, AO
                President – AIST

                DECEMBER 2001
The grounds for early release

1.       Does the availability of early release of superannuation benefits on limited
         grounds unjustifiably impair the principle of preservation of funds for
         retirement? Should early release be available on any grounds?

         Whilst there is a strong preference for no release of superannuation funds, Trustees
         acknowledge that there may be cases of extreme financial hardship that should be
         considered. The early withdrawal of superannuation benefits must however be
         restricted because, but not limited to, the following:
         a)      Superannuation is not an ad-hoc savings account;
         b)      Integrity must be preserved;
         c)      Continuity, that is to say, members conception of Super as being a long term
                 “not touchable” right, may very well be threatened.

         If benefits are to be released then they should be form part of a financial “package”
         that integrates other forms of Government assistance. Under no circumstances,
         should the early release of super been seen as a replacement for government
         support for those in such difficulties.

2.       Is there a perception amongst members of the public that their superannuation
         benefits are their money, which should be available for their use whenever
         required? Does this create a problem for superannuation funds? If so, what
         might be done to overcome this perception?

         Generally, members do believe that superannuation is “their money” but do
         recognise the fact that it is not accessible until retirement. This restriction may very
         well cause some members to be bitter when they need money urgently, but the small
         minority that become bitter is a receding proportion. Not only that, but members have
         reasonably quick and cheap access to the Superannuation Complaints Tribunal

         In terms of any action that can be taken, it is suggested that:
         a)     The government should provide a statement supporting the preservation of
                super as part of the Governments Income & Retirement Policy ;
         b)     This statement should include pre-determined eligibility criteria that can be
                administered by the Government (eg through Centrelink) rather than the
         c)     This statement could be incorporated in the Centrelink letter which is provided
                to persons receiving „Commonwealth income support‟ who seek to apply to
                their super fund for early release of benefits due to financial hardship;
         d)     This statement should also be included in APRA‟s application for early
                release due to specified grounds.

AIST Submission to the Senate Select Committee on Superannuation & Financial Services            2

Impact on superannuation funds

3.       How much money do funds release each year under the financial hardship
         provisions? What proportion of a fund’s total release of benefits does this

         This amount of course varies between funds – some examples include:

         Fund A
         It would not exceed $100k/p.a. This would represent less than 0.02% of the Fund‟s

         Fund B
         $100,000 (17 payments); 95% of total release payments.

         Fund C
         For 2001 - received 21 applications and about 8 were approved (ie; 4%). Roughly
         $60,000 would have been paid.

4.       How significant are the administration costs involved in dealing with financial
         hardship claims?

         This varies between funds. For example, in Corporate Superannuation Funds most of
         the work may be done in-House at no cost to the Fund. Here, the employer meets
         the costs. Sometimes legal advice is obtained, but this cost to the Fund would be of
         very little significance.

         If a fund receives many applications then a large amount of time goes into
         administering these applications, particularly where the trustee is required to seek
         more information. This has been estimated at a cost of $100-$300 per claim in lost

5.       Has the number of claims under the financial hardship provisions increased or
         decreased since the current regulations were made in 1997?

         Again, this has varied between funds.

6.       Does the application of these provisions create an unduly onerous burden on
         superannuation funds, particularly smaller funds? If so, what could be done to
         lessen this burden?

         In most instances, Trustees would regard this as part of their role as Trustees.The
         only way to lessen the burden would be to remove Trustee discretionary powers, and
         set specific criteria administered by the Government.

AIST Submission to the Senate Select Committee on Superannuation & Financial Services           3

7.       Should application of the severe financial hardship provisions be optional for
         superannuation funds according to the terms of their governing rules, or
         should all funds be required to make some provision for such cases?

         All funds must have the same rules on this issue. There should be no potential for a
         fund to gain a competitive advantage through this issue.

Income support payments

8.       Are there other types of Commonwealth income support payments, which
         should qualify a person for early release of benefits? For example, should
         Austudy payments automatically be excluded in the case of a person who may
         have become disabled and receive Austudy instead of a disability pension
         because he or she chooses to retrain in another area of work?

         This question may require more time (research) to determine an adequate response.
         In some respects, Trustees consider that a person in need of Commonwealth support
         should get that support and super should be left for retirement. Superannuation
         should not be a substitute for Commonwealth support before retirement. Conversely,
         it has been argued that Commonwealth income support payments should have
         absolutely no effect on access to super during the accumulation stage.

         There is a question about using the receipt of such support as a means of
         determining financial hardship. It has been suggested that there may be members
         who are clearly in severe financial hardship but who are not in receipt of
         Commonwealth income support because it is their choice to continue to participate in
         the workforce at low wages.

9.       Given that income support payments may be suspended or stopped for
         different reasons, do people have difficulty meeting the requirement for receipt
         of income support payments for a cumulative period of 26 weeks? If so, what
         could be done?

         There should be a set of clearly defined criteria for “severe” financial hardship, and
         link any entitlements to other Government benefits available. The 26-week period
         should be redefined to include periods where no benefit was paid for reasons other
         than employment income.

AIST Submission to the Senate Select Committee on Superannuation & Financial Services             4

10.      What type and standard of proof should be required to satisfy the severe
         financial hardship test? Should there be some system of independent
         assessment of members’ claims?

         Basically, it should be disposable assets & income versus liabilities. Trustees need
         to consider whether accessing superannuation is a “last resort”.

         Types of proof may include, but not be limited to:
          Certified True Copies (or originals) of Bank Statements;
          Certified True Copies (or originals) of Taxation Returns;
          Certified True Copies (or originals) of Centrelink Statements;
          Certified True Copies (or originals) of Hire-Purchase, Mortgage, Rental and
            etcetera documents
          Certified True Copies (or originals) of Shopping Receipts;
          Details of family needs and expenses;
          Statutory Declaration as part of the Application Form.

         Unless APRA wants to take it over, as is done for withdrawals on the basis of
         Compassionate Grounds, I believe that the time and cost of an assessment service
         would not be warranted. Furthermore, I believe that, as the Trustee‟s discretion is still
         required, double handling would be introduced.

Assessing claims

11.      Are there problems in assessing claims of financial hardship where a person
         may be a member of more than one fund?

         There should be none, however there may be a range of individual circumstances,
         which make it so. For example, if it is known that the member is solely in an
         actuarially based Defined Benefit Fund (being the fund to which the member has
         made his/her claim) but the member also has another fund which is purely defined
         contribution (accumulation) it may be prudent for the Trustee to adjourn the matter
         and advise the member that it would be better financially for him/her to make a claim
         on the other fund.

12.      Is the test of being ‚unable to meet reasonable and immediate family living
         expenses appropriate? Are the guidelines circulated by APRA adequate to
         assist trustees in determining whether a person has met this test? Should the
         test be more strictly defined, or should trustees retain a broad discretion in
         applying the test to their fund members?

         In principle, the test of being ‚unable to meet reasonable and immediate family living
         expenses appropriate is appropriate, but it is a difficult issue to monitored by a
         Trustee. Clearly, what APRA provides is only a „guideline‟, and it is up to the Trustee
         to draft applications to ensure sufficient information is being obtained to satisfy
         whether the applicant is truly in financial difficulty.

AIST Submission to the Senate Select Committee on Superannuation & Financial Services              5

         In most cases, additional information needs to be sought. Either, Trustees should
         retain broad discretion and the APRA guidelines should be elaborated on to enable
         Trustees to be more consistent in their decisions, or Government should administer
         all claims.

13.      Is there difficulty in assessing the genuineness of claims? If so, what could be
         done to assist trustees?

         The task is not necessarily a difficult one but it is time consuming. The onus is on the
         Trustee to ensure sure their application adequately requests and clarifies what is
         required of the applicant to evidence their position of financial hardship. It is up to the
         claimant to evidence their case and it is up to the Trustee to request sufficient
         information to make the appropriate assessment.

         AIST provides specialist training to assist Trustees in assessing Death Benefit and
         TPD claims and could offer courses on this subject for Trustees.

Limits on payments

14.      Are the limits on the maximum amount that can be released under the first
         ground appropriate (that is, a single lump sum of not more than $10,000 in
         each 12 months)?

         In most cases, it is an appropriate level of payment but the amount should be CPI
         indexed over an appropriate period, perhaps every quarter.

15.      Should there be an upper limit on the amount that can be released under the
         second ground of severe financial hardship (that is, where a person has
         reached the preservation age and has been in receipt of Commonwealth
         income support payments for at least 39 weeks)? If so, why?

         Where a person‟s superannuation is no longer preserved the person has been on
         support for at least 39 weeks, then that person should be deemed to have
         permanently left the workforce.


16.      Are the grounds for release for medical treatment adequate? Should they be
         tightened or made less restrictive in any way?

         The grounds for release for medical treatment are adequate.

17.      Are there any difficulties in obtaining funds quickly to meet medical expenses,
         palliative care and funeral expenses? Should any steps be taken to streamline
         the process? If so, what are they?

         There can be difficulties in individual circumstances, however generally there is no
         need to change.

AIST Submission to the Senate Select Committee on Superannuation & Financial Services             6


18.      Are the provisions that allow for modifications to a person’s home or vehicle in
         the case of a person’s severe disability sufficient to meet the needs of disabled

         Probably not as the actual cost would probably exceed the maximum payable.


19.      Apart from the prescribed limit on funds for mortgage repayments, should
         there be any restriction on the amount of money made available on
         compassionate grounds? Is the limit of a single lump sum determined by
         APRA to be reasonably required appropriate?

         Probably yes, but more than less generous.

20.      Are the provisions concerning mortgage payments to prevent foreclosure
         adequate? Is the upper limit of three months repayments under the mortgage
         and 12 months interest on the outstanding balance of the loan appropriate?
         Should the provisions be tightened or made less restrictive in any way?

         As superannuation will be needed later in life, this again raises the question of the
         appropriateness of using superannuation benefits for this purpose. If the problem is
         more than short term, the member may very well have to seek rearrangement of
         his/her financial situation.

21.      Are there any difficulties in obtaining funds quickly to meet mortgage
         repayments? If so, what could be done?

         No, unless Trustees suspect fraud, then they generally act immediately on
         presentation of Application Form and APRA Letter.

22.      Should people who are renting their home and cannot meet their rental
         payments be treated differently from those who own their own homes and
         cannot meet the mortgage repayments? That is, should the grounds for early
         release include an inability to meet rental payments, or do different policy
         considerations justify the distinction?

         There should not be any difference, and funds should be payable in the case of late
         rental instalments. There should not be any such discrimination base on Home

AIST Submission to the Senate Select Committee on Superannuation & Financial Services            7

Other grounds

23.      Is APRA’s residual discretion to release benefits to meet other expenses
         consistent with the specified grounds necessary and appropriate?

         No comment

24.      Should any other matters be added to the list of prescribed expenses for
         release on compassionate grounds? Why?

         No comment

25.      Is a list of defined criteria preferable to a broad discretion to release funds on
         compassionate grounds? Why?

         This is difficult to determine as Trustees would say no, but then there may be a range
         of outcomes from APRA on similar causes. On the other hand, a set of defined
         criteria clearly sets out eligibility for the release of funds, this may become too
         prescriptive and remove any discretion on the part of Trustees.

26.      Are there any problems in the relationship between the social security
         legislation and the provisions governing early release of superannuation
         benefits, for example, in the way access to one affects eligibility for the other?
         If so, what are those problems? How might they be addressed?

         It is suggested that, in case of a member successfully gaining an early withdrawal on
         severe financial or compassionate grounds, the member should not then be subject
         to restrictions of social security legislation.

27.      Are individuals who are receiving Commonwealth income support payments
         compelled in practice to access their superannuation benefits because the
         financial hardship provisions exist? Should they have a choice whether or not
         they do so?

         No comment

28.      What is the impact of the recent changes that took effect from 1 July 2001 to
         income assessment for Commonwealth income support payments to people
         over 55 years of age?

         No comment

AIST Submission to the Senate Select Committee on Superannuation & Financial Services         8

29.      Is there sufficient public awareness of the role of the Superannuation
         Complaints Tribunal in hearing complaints about decisions on the early
         release of benefits? Should either trustees or the Tribunal be making available
         more information and/or education for superannuation fund members about
         the Tribunal’ role?

         There is not enough awareness, and more information and education should be
         provided. Although there is a need to balance increasing any perceptions about the
         role of the tribunal in the early release of superannuation and the need to make
         information regarding their rights available to members.

30.      What proportion of the Tribunal's work deals with complaints about early
         release of benefits? Should the Tribunal's role in such complaints be changed
         in any way? If so, how?

         No comments

31.      Should the Tribunal's procedures be changed in any way to assist people who
         complain about trustees decisions on severe financial hardship? If so, how?

         The Tribunal must be certain that the Trustee arrived at a decision properly, and the
         tribunal probably cannot hear the application de nova. The Tribunal could only refer
         the matter back to the Trustee.

32.      Should any changes be made to complaints about APRA's decisions in relation
         to release of benefits on compassionate grounds?

         No comments

33.      Do people need the assistance of financial or legal advisers to obtain early
         release of their benefits? Is there a need for better education for fund members
         about their access to early release on severe financial hardship or
         compassionate grounds?

         People should not need legal advice, but it is fair and proper that the guidelines for
         release should be accessible and understandable. However given the circumstances,
         it may be appropriate for people to receive financial management “guidance” as
         members may – amongst other issues - be losing out on the tax advantages of

         Consideration needs to be given to how this advice should be funded. This advice
         should be government funded, and should not come from the member‟s own fund‟s
         financial or legal advisers due to conflict of interest.

AIST Submission to the Senate Select Committee on Superannuation & Financial Services            9

34.      Are any steps being taken to protect fund members from unscrupulous
         advisers in circumstances such as those outlined above?

         Not aware of cases of this type but do not doubt that they exist.


Assessing Claims:
Based on APRA's current guidelines there should be a set of regulations created that
provide for the reasonable release of preserved funds to individuals in times of need and
when Commonwealth benefits have been exhausted. These regulations should be
minimalist and mainly concerned with ensuring consistent fund rules on early release. Broad
discretion should be given to APRA to decide claims is preferable to a long list of “do's and
don'ts”, and the principal of preservation should be paramount.

Principles of Early Access to Superannuation;
Superannuation should only be accessible in limited circumstances. The current means of
access are acceptable but there must be very prescriptive guidelines that enable all
members to be treated in the same way by all funds. Trustee discretion has the potential to
cause inequities in member treatment.

Severe financial hardship provisions should be the same for all funds and each fund should
have the same provisions in their governing rules. It is easy to understand why members
view super as confusing when different funds have different governing rules. All funds should
operate under a core of provisions that are identical.

Early Release due to Financial Hardship
Until the regulations were strengthened ie. pre 1997, there were many requests for early
release of hardship approved by (then) the ISC. These requests were reduced by about
90% when the regulations were strengthened. In the case of releasing amounts of $10,000
to persons who have been in receipt of Govt benefits for at least 6 months, my opinion is that
it could be more beneficial to release smaller amounts on a more frequent basis for these
people eg. $5,000 after 3 months.

Current Requests for Early Release (on any grounds)
Our rules only allow amounts to be released if approved by APRA. We are aware of some
requests, which are not approved by APRA, which on face value appeared to the Fund
Trustees to have merit eg. single parents seeking the opportunity to purchase a modest
home, parents seeking medical help for their children etc. We also have great difficulties in
the case of overseas employees working in Australia on secondment from our parent
company, or other employers in our group of companies. A disproportionate amount of time
is spent in adjusting their superannuation benefits in their home country to take into account
the SG amounts paid in Australia (and retained in Australia) for them. It is especially tricky
to try to offset an overseas fund‟s defined benefit by an accumulation of SG amounts in
Australia. Attempts to “make the employee whole” also result in the manipulation of other
components of their employment package – none of this really adds value.

AIST Submission to the Senate Select Committee on Superannuation & Financial Services       10

Small Amounts – more than $200
From experience, amounts greater than $200 (say less than $1,000) are still considered by
employees to be too trivial to worry about – especially younger employees. These monies
are more likely to be sent to an ERF than rolled over to another fund.

Our Company made a conscious decision to allow retained benefits (except for “lost”
members) since we are generally the contact point for the employee several years after the
money had been sent to an ERF. We have also had considerable experience this year in
helping members try to retrieve moneys located via the various registers. The information
held on the lost member register is so poor (often just a surname and initial, and no other
information) that it seems it would be almost impossible for the genuine lost member to be
repatriated with their lost super. Many of these amounts would be less than $1,000. Out of
the many searches we have done this year, to my knowledge no member has been able to
be repatriated with their lost super.

Education of Members
The need to communicate so many things with members now means that members are
literally swamped with information, so trying to educate them regarding their rights re: early
release of benefits would simply add to the information overload. This year alone, we need
to educate members about the various legislative changes as well as prepare them for a
short-term future of single digit returns. The best thing, I am sure, is publicising the various
telephone enquiries numbers so that members can ask for specific information on a need to
know basis.

AIST Submission to the Senate Select Committee on Superannuation & Financial Services         11


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