Senate Select Committee on Superannuation
& Financial Services
Early Access to
The Association of Superannuation Funds of
About ASFA 3
ASFA position on early release 3
Overview of ASFA conclusions 4
Research & Analysis 6
Trends in the payment of claims 6
Releases prior to 1987 6
Releases after 1987 7
Releases after July 1997 changes 8
Leakage from retirement income provision due to early release provisions 10
Composition of commonwealth income support recipients 11
Specific comments on discussion points 13
Severe financial hardship 15
Compassionate grounds 24
Other Issues 25
The Association of Superannuation Funds of Australia Ltd Page 2 of 28
The Association of Superannuation Funds of Australia (ASFA) is the peak industry body
for superannuation. ASFA’s 532 constituent members are estimated to be responsible for
around $420 billion of assets, or about 80% of total superannuation funds under
management. ASFA’s coverage by percentage of assets and members varies between
categories, ranging from around 70% for corporate funds to around 90% for industry,
public sector and retail funds.
The short time frame available to address the issues has limited the research and
consultation possible by ASFA.
ASFA is currently undertaking its periodic surveys of its industry fund and public sector
fund members. These surveys included questions as to the number of benefits released
under “severe hardship” and “compassionate release” claims. The return date was
December 2001 but some preliminary figures have become available. ASFA has also
sought additional information from a limited number of retail funds. An analysis of these
figures and other available data, which is provided in Section 2 of this paper, indicate a
growing trend to the early release of funds.
ASFA also invited comment from its members on the specific questions raised in the
Senate discussion paper. The responses and experiences are detailed throughout this paper.
ASFA position on early release
The primary objective of superannuation is to help ensure that individuals have access to an
adequate level of retirement income (above the age pension safety net) and that the future
reliance on age pensions can be reduced.
In ASFA’s view the primary focus of savings through superannuation needs to maintain
this objective and the provision for retirement income. Accordingly ASFA supports the
general “preservation” rules of saving until retirement.
Against this background ASFA notes that achieving this primary objective of an “adequate”
level of retirement income is still problematic given rising expectations in the community,
broken work patterns, the level of contributions and relatively recent introduction of policy
related to the payment of compulsory superannuation.
A mix of: better tax incentives, increased compulsory savings and better education will be
necessary to encourage individuals to adequately save for retirement and to close the gap
between current savings and expectations.
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Superannuation savings should not become a substitute for social security in times of crisis
without there first being a conscious decision by government to this effect, and such
decision being supported by extensive public consultation. ASFA would view any
extension to the early release provisions as being privatisation of social security by stealth.
Such a decision (to extend the early release provisions) would require a lifting of the
compulsory savings rate to meet the expanded objective of superannuation savings.
Reducing pre-retirement claims – or calls – on superannuation savings is a necessary part of
the process of reinforcing superannuation as the primary retirement savings vehicle. The
preservation rules help to ensure the adequacy of savings outcomes for an individual and
help to state unambiguously the purpose of super.
How to deal with the tension between the objective of retirement savings and the
emergency of short-term needs is of course a very difficult issue. The existence of any
early-release provisions constitutes a judgement on what that balance should be and
inevitably leads to pressure to expand the allowable circumstances for the release of
superannuation savings before retirement.
If the policy objectives of saving for retirement are to be sustained other options – rather
than access to super savings – will also need to be considered. These may include the
provision of a higher level of social security payments for the unemployed or disabled and /
or special emergency relief or loan arrangements that are administered by Centrelink as part
of its social security arrangements.
As detailed in Section 2, a number of changes were made in July 1997 to the early release
provisions. These were intended to reduce the administrative burden on the regulator and
to tighten the hardship and eligibility criteria. The projected figures as to likely payouts
have however proved to be conservative. The preliminary ASFA analysis of these figures
suggests that in the year July 2000 – June 2001 there were around 83,000 hardship and
compassionate payments and an aggregate payment of over $350 million.
The analysis indicates that hardship payouts could increase, particularly given the
“discretionary” element of the assessment, recent SCT cases and the increasing
administrative burden now being placed on funds and trustees.
Overview of ASFA Conclusions
Having reviewed both the criteria for, and the administration of, the early release of benefits
ASFA has concluded that:
In special limited circumstances access to superannuation savings may be the
only option available to some people.
The circumstances in which people can gain early access to their
superannuation benefits need to be limited. Early release undermines the
general principle of preserving superannuation until retirement and the primary
objective of saving through superannuation.
Other policy options or strategies need to be developed to better meet the
emergency relief / income support of some people prior to retirement.
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The anomalies in the current administration of hardship provisions point to the
need for a more objective test and / or a centralised agency (such as APRA or
Centrelink) to administer hardship claims.
Assessment of claims for early release due to financial hardship can be very
time consuming and costly. This and the differences in practices emerging
between funds adds to the importance of an objective test and / or centralised
agency to administer claims.
The possibility of members having multiple accounts and the proposal for
Choice of Funds means that policing of the “one payment per year / per
member” rule needs to be better coordinated.
The increased costs of administering the claims and / or protected member
accounts is borne by all other fund members.
It is inappropriate for trustees to make decisions about people’s (and those
people’s families’) financial status. They do not have the skills or time.
An external and centralised administrator is required to achieve a cost effective
and consistent approach to processing all early release claims.
The administrator could be located within APRA or Centrelink.
The administrator would need additional resources and skilled staff
who have both a clear understanding and recognition of the primary
purpose of superannuation and the counselling and other skills which
would assist individuals in the management of their financial and / or
The aim of assessing claims and providing assistance should be to
provide a service that does more than just give a handout.
The early release of superannuation monies should be regarded as a last resort.
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RESEARCH & ANALYSIS
Trends in the payment of severe hardship and compassionate release
Comprehensive information about the level of early release claims and the amounts paid
out is not easy to come by. Centralised recording of information occurred only between
1988-89 and 1996-97, and even in regard to those years only certain basic aggregates were
publicly released by the regulator, the ISC (subsequently APRA). Since 1997 there has
been no central collection of data in regard to hardship claims and benefit payments, and
only limited information on compassionate releases.
This gap in regard to information has been partly remedied by ASFA Research Centre
analysis of survey responses from ASFA members. Information on the number of
hardship and compassionate release benefits paid by funds has been collected as part of
the 2001 Superfund magazine surveys of industry funds and public sector funds.
(Superfunds is the official publication of ASFA.) However, these surveys are still in the
field and only preliminary results are available. The data has also been supplemented by
information provided to ASFA by a range of its members following the release of the
discussion paper in the course of this inquiry.
The net result of this activity is the collection of information in regard to funds accounting
for around 15% of industry fund members, 35% of retail fund members (other than those
in Eligible Rollover Funds, around 25% of local government scheme members, around
20% of State public sector schemes, and a limited number of corporate funds.
Releases prior to 1987
Prior to the passage of Occupational Superannuation Standards Act 1987 (OSSA) the
concept of early release of preserved superannuation benefits was not very meaningful.
Prior to that legislation, the prudential framework for superannuation rested broadly on
the principles of trust law supplemented by controls in the Life Insurance Act, corporation
law and the Income Tax Assessment Act. While the rules of specific schemes could
require preservation of benefits to a specified age or occurrence there was not a general
requirement to preserve benefits until age 55. In fact most corporate schemes required the
payment of any vested benefits when employment ceased for whatever reason. In many
instances the unemployed were no longer members of superannuation schemes, and
release on hardship grounds was irrelevant.
In the case of a number of public sector schemes there were often preserved benefits.
Generally, employer financed benefits were not available prior to the age retirement age of
the scheme concerned. In some instances there was a capacity for members to have their
own contributions returned to them, often at the costs of foregoing any entitlement to a
deferred employer benefit. There is evidence that many ex public servants took their
member contributions, either because of hardship or other immediate needs.
In the case of personal superannuation policies marketed by life insurance companies the
main barriers to early release were punitive financial penalties built into the surrender
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value of policies not held until retirement age. However, the discontinuance rate for these
personal superannuation policies was reasonably high, often because individuals
discovered that they did not have the financial capacity to make regular contributions.
The failure to make regular contributions could lead to financial penalties that rivalled the
penalties for discontinuance.
Releases after 1987
Following the passage of OSSA in December 1987, the operating standards for funds
required the preservation of a minimum benefit equivalent to compulsory (award)
employer contributions and employee contributions plus earnings on both (less the costs
of administration and any insurance cover). Part of most superannuation benefits was
required to be preserved until age 55. Exceptions in the provisions related to death and
disability benefits, permanent departure from the country, resignation benefits less than
$500, and hardship.
The regulations did not specify criteria for hardship release any more specifically than the
Commissioner being required to make a determination in writing that the person is in
financial hardship. As indicated in Table 1, the Commissioner (or his delegate) was soon
kept very busy with such determinations. The number of applications rose from around
3,000 in 1988-89 to over 87,000 in 1996-97. The success rate of applicants also increased
as they became more focussed in their applications and / or “streamlined procedures”
were introduced as the ISC strove to cope with the large volume of applications. ASFA
understands that in the mid-1990s the ISC automatically approved release where a benefit
was under $1,500 and the member was unemployed. There is no real evidence that the
switch in criteria in 1994 from “financial hardship” to “severe financial hardship” had any
real impact on the percentage of applications granted.
As ASFA understands the matter, the bulk of releases were from industry and retail funds.
When ASFA contacted a number of major corporate funds in 1996 concerning hardship
releases, those funds indicated that only a handful of members had sought hardship release
while still employed, and that only a few had sought the early release of a termination
benefit when this applied following resignation, retrenchment or ill health. Hardship
claims for a number of corporates were as few as one out of each 1,000 benefits paid.
Some corporate and public sector schemes did not allow hardship release at all, and had to
deal with members who had an expectation of payment following approval by the ISC.
The number of hardship releases by retail funds was not specified by ASFA members at
that time, but comments indicate that some of the amounts being released were
Average payments approved by the ISC appear to have declined over time, from $6,700 in
1993-94 to $3,400 in 1996-97. This may have been due to the combined effect of tighter
criteria for release being applied, the stock of preserved benefits being run down by the
long-term unemployed and the introduction of the Superannuation Guarantee in 1993-94
extending superannuation to many more work force participants.
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Table 1: Claims for early release of preserved benefits processed by the ISC
Year Applications Percentage approved
received in full
1991-92 25,815 70.0
1993-94 36,184 78.0
1994-95 39,680 82.0
1995-96 55,199 83.6
1996-97 87,648 87.0
To be fair to the ISC, it would not have had any real basis for being able to predict the
volume of early release applications on the grounds of hardship, or to anticipate the
practical difficulties it would encounter in dealing with the large volume of applications.
This was both a new concept for Australia, and a concept not relevant to most other
countries. Most countries require benefits to be taken as an income stream, and on top of
this do not permit payment unless age retirement or death and disability occurs. In the
United States lump sums can be obtained from 401k retirement plans prior to age
retirement, but these withdrawals are dealt with by punitive rates of taxation rather than
any allowance for hardship.
Releases after July 1997 changes to hardship provisions
With effect from July 1997 a number of changes were made to the early release
provisions, both to reduce the administrative burden on the regulator and to tighten
In regard to severe financial hardship, the introduction of an objective test linked to
receipt of specified Commonwealth income support was expected to significantly reduce
releases on the grounds of hardship. However, there was no precise forecast made of the
likely impact. The ISC noted in evidence to the Committee (page 9 of the 26th Report)
that some 65% of then applicants were on DSS benefits and adoption of that criterion
alone would result in some tightening. In addition, the new criteria required a number of
other tests to be satisfied in regard to the nature of the hardship being experienced.
For individuals not on the specified forms of income support, early release is available
only on compassionate grounds. However, as the Senate Select Committee noted in it
26th Report, the criteria used for this form of release have more the character of
desperation than compassion. The conjunction of very restrictive criteria and extremely
limited discretion on the part of APRA mean that only a very limited number of
individuals are able to achieve release of benefits on compassionate grounds.
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Table 2 sets out data for hardship claims paid in 2000-01 by a sample of industry funds
responding to the annual survey conducted by Superfunds magazine. The funds detailed
in the table accounted for around 15% of the total members of industry funds in that year
and somewhat higher once allowance is made for REST. REST, which has around a
million members, does not permit the release of benefits on hardship grounds. However,
it does allow release on compassionate grounds, and with 450 such releases in 2000-01 it
accounted for around 8% of the total such releases approved by APRA. There is also
anecdotal evidence of some REST members rolling over benefits to other funds so at to
facilitate hardship release.
Table 2: Number of hardship and compassionate releases reported by industry funds to ASFA
Asset size Hardship Compassionate Hardship claims
Members ($m) claims releases as a % of members
5,200 150 0 3 0.00%
6,036 32 120 1.99%
7,085 93 20 3 0.28%
8,745 58 150 1.72%
11,514 235 4 0.03%
11,670 1,096 100 0.86%
13,505 118 60 5 0.44%
16,722 905 107 15 0.64%
19,243 168 54 11 0.28%
28,286 1,115 60 20 0.21%
30,656 272 156 25 0.51%
32,000 173 200 0.63%
38,763 81 346 10 0.89%
56,650 597 27 10 0.05%
64,031 291 1,123 15 1.75%
88,367 144 157 5 0.18%
95,183 272 757 50 0.80%
105,692 485 415 20 0.39%
117,000 409 391 0.33%
130,051 524 500 55 0.38%
164,450 841 493 0.30%
434,810 2,900 2,449 0.56%
1,141,785 3,634 450 0.00%
Total 2,657,434 14,040 7,582 682 0.52%*
This information from industry funds, together with information from ASFA retail and
other members in regard to the incidence and amount of hardship releases, has been used
by the ASFA Research Centre to calculate aggregates on hardship releases for various
categories of superannuation funds and the sector as a whole. Table 3 provides details.
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Table 3: Hardship payments by type of fund, 2000-01
Type of fund Members at Number of Total hardship
June 2001 hardship claim payments
(million) claims paid ($ million)
Industry 6.98 33,000 115
Corporate 1.57 500 2.5
Public sector 2.85 10,000 35
Retail (excluding RSAs 8.30 33,000 165
Retirement Savings 0.30 Negligible
Eligible Rollover Funds 3.00 Unlikely
Small funds 0.39 Unknown
Total 23.20 76,500 320
APRA has also reported approval of releases on compassionate grounds which are
currently running at a rate of 6,000 a year, with total releases around the $30 million level.
While the above figures are only an approximation based on a sample of ASFA members,
it would appear that benefit payments on the grounds of hardship and compassionate
grounds currently are running at around 83,000 a year, with aggregate payments of over
$350 million. For the categories of funds paying out such benefits, they amount to around
2% of total benefit payments and rollovers to other funds that are processed.
Figures on trends in early release payments are not available. Payments were running at
around 80,000 a year with aggregate payments of around $280 million a year when the
ISC last centrally processed such claims, in 1996-97. The introduction of new criteria was
expected to exclude around one-third of then claimants. It would appear that over the last
4 years the volume of claims has returned to above the previous level, with the total
payments exceeding those in 1996-97.
Hardship and compassionate release claims are more expensive to process than retirement
payments or rollovers. Even when paperwork from the applicant is in order it may take
between 30 minutes and 1 hour to process such a claim. The cost of processing such
applications is likely to be between $100 and $150 a claim, implying total administration
costs of between $8 million and $12 million. Most of these costs are being incurred by
industry and retail funds, which have the highest incidence of hardship and compassionate
Leakage from retirement income provision due to hardship and
compassionate release provisions
As indicated earlier, early release of benefits on hardship or compassionate grounds is
currently running at around $350 million a year and rising. This compares to total
Eligible Termination Payments to individuals aged under 55 of around $2.3 billion in
1998-99. As more general preservation requirements come into force, the amount of
benefits paid to those aged under 55 will decline markedly. For instance, the Treasury
RIM Group has forecast that the proportion of superannuation assets not preserved to
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retirement will fall from nearly 50% in 1998-99 to around 10% in 2007-08. This suggests
that, in today’s dollars, aggregate ETPs other than hardship releases paid to individuals
aged under 55 will fall from around $2 billion to $600 million to $700 million by 2007-
08. The increase in hardship releases runs counter to this general decline in the amount of
releases of unpreserved benefits. The increase in the level of preservation in the system is
also likely to put additional pressure on releases on hardship grounds.
The composition of Commonwealth income support recipients
The potential claimants for hardship releases are relatively large in number. In June 1999
there were an estimated 2.2 million persons of workforce age receiving income support of
a type coming within the hardship provisions, representing about 18% of the population of
workforce age. However, only a proportion of these recipients had been receiving income
support for more than 26 weeks, or would go on to. As well, of those receiving income
support, a substantial proportion was drawn from groups with little or no superannuation
Table 4 sets out the main categories of recipients.
Table 4: Recipients of Commonwealth income support
Type of payment Number Level of super cover
Unemployment, mature 760,400 Many unemployed aged under 55 with some
age payments super, those over 55 often can access super
without hardship release
Disabled or sick 571,100 Some with super, substantial proportion no
Lone parents 380,400 Low rate of super
Partnered parents 226,500 Relatively low rate of super
Wives and partners 159,300 Low rate of super
Carer payment 38,400 Substantial proportion with some super
Widows 28,100 Low rate and / or able to access super
Veterans 29,300 Can meet other conditions of release
CDEP 32,000 Significant proportion currently receiving
It is also a requirement that recipients be receiving support for 26 weeks or more.
Centrelink records would be available in regard to the numbers meeting this criteria, but
ASFA has not had access to them. Statistics are publicly available on the number of
recipients who have received payment for 2 years or more. Table 5 provides details for
the April 1996 to March 1999 population of recipients. Over the three year period there
were 1.9 million individuals who received at some stage income support for more than 2
years. This suggests a flow of new long term income support recipients of about 600,000
a year. The unemployed and the disabled or sick account for the majority of such
Table 5: Duration of receipt of income support
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Type of payment Number < 2 years Number > 2 years
Unemployment payments 1,126,000 542,600
Mature age allowance 8,500 41,300
Disabled or sick 85,400 529,200
Lone parents 138,500 347,700
Partnered parents 259,200 175,700
Wives and partners 51,700 59,700
Carer payment 15,500 29,800
Widows 0 11,400
A large proportion of a number of categories of income support recipients do not go off
Commonwealth income support. Over 70% of people receiving income support in
September 1995 were also on payment in June 1999 (Table 6). About one in ten (almost
one in five of those receiving a pension payment) had progressed to the Age Pension.
Table 6: Percentage of those receiving income support in 1995 who received no income
support of any kind as at June 1999
Type of payment Percentage no support
Unemployment payments 46
Mature age allowance 3
Disabled or sick 3
Lone parents 27
Partnered parents 46
Wives and partners 23
Carer payment 16
In general terms, mature age allowance recipients have effectively retired from the labour
force, as have those on disability pension. People receiving the activity-tested
unemployment allowance had the highest exit rate, followed by people on parenting
payments and Partner allowance, many of whom leave payment when their partner gets a
Rates of receipt of unemployment benefit peak around age 22 and level off with
increasing age to about age 60, when there is an increase for men. The rate of receipt of
disability or sickness payments increases rapidly after age 40.
Given that the majority of unemployment and parenting allowance recipients are aged
under 35 it is a trade off between alleviating hardship in the short term and compromising
the eventual retirement income of individuals who return to the labour force or otherwise
are no longer eligible for income support.
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SPECIFIC COMMENTS ON DISCUSSION POINTS
The following comments on the individual discussion points reflect both the views of the
Association and the views of individual members.
All comments should be read in the context of ASFA’s belief that, wherever possible,
superannuation savings should be retained in the system until an individual reaches their
preservation age and those savings should then be directed towards meeting the retirement
needs of the individual.
Q1. 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?
Any early release undermines the general principle of preserving superannuation.
Whether this is perceived as “justifiable” will vary according to individual circumstances
and the community understanding and acceptance as to the necessity of saving for
retirement and / or the preservation rules. In ASFA’s view superannuation should not
become a substitute for social security.
Australia is unusual in having introduced the provision of early release. As noted in
Section 2 most countries require benefits to be taken as an income stream, and do not
permit payment unless age retirement, or death or disability occurs. In the USA lump sums
can be obtained from 401k plans prior to age of retirement but are subject to punitive rates
The revised early release criteria introduced in 1997 included an objective test related to the
number of weeks on Commonwealth income support and an additional requirement that
trustees be satisfied in regard to the “nature of hardship” being experienced. As described
below this has led to anomalies and a lack of consistency in the application of the rules for
early release and the potential for impairment of the principle applies.
As noted by one industry fund:
“The principle of preservation is somewhat impaired by the availability of
early release, but is severely impaired by the considerable variation in the
application of rules for early release – from approving nothing in the case of
one very large fund, to approving everything without question as practised by
one large bank fund. It would be better if early release was not available at all,
but the rules for compassionate grounds be slightly enlarged and APRA make
In summary, the availability of early release in a very limited set of circumstances should
not impair the fundamental principle of preservation of superannuation funds for
retirement. However the expansion of circumstances for early release and the development
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of an expectation that it is a right will erode the principle of preservation and the purpose of
Industry practice for processing release requests varies between those funds which
automatically release on receipt of documentation of relevant Commonwealth income
support payments, to funds which used such documentation as a starting point for
considering release, through to funds with a trust deed provision which prohibits the
release. This lack of consistency in the treatment of application may also impair the
principle of preservation.
While there is a view held by some in the industry that “absolute preservation would be
draconian and unjust”, there is also a consistent view that “superannuation is for retirement
and should not be accessible prior to retirement”.
As one fund executive said:
“Will these members think so highly of us in retirement when they have nothing
to fall back on, but could have found better ways to get money if they had
sought the assistance of a financial counsellor.”
The impact of the early release of a recipient’s retirement benefit can be seen in the
Amount released Amount after Amount in today’s Amount in today’s
lump sum tax dollars if kept in dollars if kept in fund
(21.5% rate) fund for 30 years for 40 years
$4,000 $3.140 $9,784 $13,320
$6,000 $4,710 $14,677 $19,979
$10,000 $7,850 $24,461 $33,299
Assumptions: Fund earning rate of 7% nominal, Average Weekly Earnings deflator of 3.75% used to
convert future retirement benefit into today’s dollars
It could be argued that receiving sums such as the above at the beginning of a long
retirement would be more beneficial to the recipient.
Q2. 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?
Evidence that this perception is held amongst certain members of the public is reflected in
the member’s attitude towards fund administration staff when requests for release are
denied. The availability of access to the Superannuation Complaints Tribunal by applicants
unhappy with the application of the subjective test by the fund trustee only serves to
reinforce the perception.
Reflective of this attitude was the comment by the complainant in Superannuation
Complaints Tribunal Determination D01-02112 that the superannuation money belonged to
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her and it should be her decision and that the trustee should “butt out of other people’s
As with most matters where there is a lack of appreciation of the context in which policy is
set, there appears to be a need for better education. This could be as simple as including a
statement on all APRA, and other, documentation about early release of the fundamental
premise on which superannuation is based; that of a long term savings plan with a long
term objective of providing better living standards in retirement.
In this sense it was suggested by one fund that:
“members should be made more aware that they are in “retirement” funds
more so than superannuation funds.”
The perception of early entitlement is perpetuated by financial advisers and media
contributors who, in the words of one fund secretary, lose sight of the fact that:
“…. the majority of superannuation money has been contributed by employers
to provide benefits in retirement – not to pay bills earlier.”
In ASFA’s view, whether early release is available or not, there will remain a need for
greater awareness by fund members and others as to the purpose of superannuation and
preservation. The concessional tax treatment provided to superannuation for this objective
also needs to be remembered.
Severe financial hardship
Impact on superannuation funds.
Q3. 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 represent?
As detailed in the Section 2, ASFA’s preliminary analysis indicated that hardship claims /
payouts vary considerably between funds. It would appear that benefit payments on the
grounds of hardship and compassionate grounds currently are running at around 83,000 a
year with aggregate payments of over $350 million. For the categories of funds paying out
such benefits they amount to around 2% of total benefit payments and rollovers to other
funds that are processed.
The amount that individual funds released under the hardship provisions as a proportion of
total funds released varies according to the type of fund and the nature of the industry in
which the member is employed.
The incidence of claims appears to be lowest in funds with a high proportion of members in
continuing employment, such as industry funds catering to non-government school
teachers. The rate of claims rises for funds in industries with a greater incidence of casual
and intermittent employees. Industry and retail funds have the highest incidence of
hardship and compassionate release claims.
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Based on information received from ASFA members the following estimates on hardship
claims may be made for various segments of the superannuation industry for 2000-2001:
Fund category Member Total Claims as a Total value Average
s at June claims % of total of h/ship value of
2001 paid members claims claims
(million) ($m) ($)
Industry 6.98 33,000 0.55 115.0 3,500
Corporate 1.57 500 0.03 2.5 5,000
Public Sector 2.85 10,000 0.35 35.0 3,500
Retail (excluding 8.3 33,000 0.40 165.0 5,000
RSAs & ERFs)
RSAs 0.3 Negligible
ERFs 3.0 Unlikely
Small Funds 0.39 Unknown
All funds 23.2 76,500 0.33 4,300
Q4. How significant are the administration costs involved in dealing with financial
The administrative costs vary according to whether the fund makes “automatic payments” if
provided with a letter from Centrelink, or whether the other tests as to the nature of
hardship are also applied (as required by the legislation).
Assessment can be very time consuming and many funds and administrators have to
employ staff full time just for this purpose.
As one fund reported:
Whilst we may not experience the same level of administration costs as Tasplan
(20% of admin costs) in handling financial hardship claims, there is no doubt
that an unreasonable proportion (in relation to total funds under management
and total member numbers) of time and energy is occupied by the regular
number of requests received each month. In addition to admin costs, a
considerable amount of time is spent by the Trustee Board and Claims
Committee in dealing with the requests. Contrary to the comments on section
3.11 of the Issues Paper, we do consider requests on a case by case basis.
Hardship claims tend to be relatively resource intensive. The application forms are
complex, and the typical experience of funds is that most applications are incorrectly
completed and / or do not include supporting documents. The applicants also tend to be
stressed, and are not generally interested in rational explanations of the regulations and
guidelines relating to the release of benefits or requests for more forms. Many applicants
tend to be in reasonably dire circumstances, and they want what they see as their money
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Of significance was the consistency of the message that, compared with total processing
costs, the cost of processing hardship claims was out of proportion to both the number of
claims made and the amount of the claim.
One major administrator has indicated that while an administrator can handle 20 or more
standard claims for benefit, they usually can only deal with 2 or 3 hardship claims an hour.
In many cases contact has to be made with the applicant and / or the administration team
By virtue of the subjective tests to be applied, the APRA guidelines and the oversight of
decisions by the SCT, the administration of hardship claims is resource intensive. The
estimates of costs provided by funds varied from $100 - $150 per claim. One fund
estimated a total cost of $150,000 per annum. It is not unusual for funds to have dedicated
officers processing these claims. As noted in Section 2 the information supplied by ASFA
members implies total administration costs of between $8 million and $12 million.
As processing costs are ultimately spread across all fund members, it would be
understandable if funds were to “lower the bar” when processing these claims.
It is important to note that where there are significant processing costs these are not borne
by the member applying for early release. There is no separate administration fee charged
for processing these claims. The cost is ultimately met by the other fund members. That is,
the financial problems of the individual become a burden on, and cost to, all fund members.
Many claimants will end up as protected members, with account balances below $1,000.
Once again they become a financial burden on other fund members, as the shortfall between
earnings on the member’s account and the administration fee is spread across the non-
protected members in the fund.
Adoption of the ASFA preference for all claims to be processed by a centralised agency, as
stated in the introduction, should provide a method of achieving a more cost effective and
Q5. Has the number of claims under the financial hardship provisions increased or
decreased since the current regulations were made in 1997?
Most funds report a significant increase in the current annual number of requests for release
made in the current year compared to the 1997 figures. The consensus is that increasing
account balances and greater awareness of superannuation are both contributing factors.
As noted in Section 2, the current number of hardship and compassionate benefits paid is
around or just above the number of hardship claims approved by the ISC in 1996-97. The
tighter criteria imposed in 1997 would have lead to an initial reduction in claims of around
one-third, with this reduction being unwound over the last 4 years by a 50% increase in the
number of claims paid.
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This estimated growth in claims may be conservative. Information from one large industry
fund indicates that it had a 60% increase in the value of hardship benefits paid between
calendar 1998 and estimated benefits in calendar 2001.
Q6. 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
Potentially the administration burden is onerous. This arises because only the threshold test
is objective. Once a member passes the threshold test the trustee is required to subjectively
assess the level of severity of financial hardship and do so on a case by case basis. Funds
which have introduced a second set of objective threshold tests in an attempt to achieve
consistency in claims processing and a reduction in the administrative burden have found
themselves subject to adverse criticism by the Superannuation Complaints Tribunal.
There is a general consensus that there needs to be a more prescriptive set of tests for
financial hardship or that it is undertaken by a central agency (APRA or Centrelink).
“The administrative burden (is) more related to following up details with
members where incomplete information is supplied, so less emphasis on
assessment is an obvious way to reduce administration. That is if the Cwlth
income support requirements are met, release could be automatic up to certain
To be truly objective and not place a burden on other members (eg creation of
extra member protection funds), the Trustee should not have to bear the onus of
examining the member’s, and indeed a member’s family’s, financial affairs.
Trustees are not financial planners and members become extremely distressed
at the intrusion in their lives. It is distressing for trustee staff as well.”
ASFA agrees with these sentiments. Yet the administrative burden on funds is likely to
become more onerous as a result of a recent SCT decision criticising trustees for imposing
blanket guidelines (D01-02\012). What appears to be expected of trustees is generally
beyond their skills. It is questionable whether the trustee has the authority to require
detailed information about other family members’ circumstances, purely for the purpose of
determining a matter that relates to one specific person. It is also questionable whether
trustees have the skills necessary to undertake an evaluation of this nature.
It is ASFA’s view that what is required to process these release requests is a centralised
agency equipped to assist these people with alternative advice and life skills training to
resolve not just the immediate problem but the underlying causes.
Q.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?
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Mandating a common set of rules to be applied by all funds will not provide a complete
solution. Difficulties would exist with defined benefit schemes attempting to build into
benefit structures a method of determining the value and impact of “early release” money.
There may also be difficulties in extending compulsion to schemes that are not directly
subject to commonwealth legislation.
“Should the releases be limited to vested benefits, or minimum benefits or the
value of member contributions only? In any case, the structure (so as to not
effect vested benefits) would require the running of debt accounts which adds
an additional cost. For deferred benefits, where the benefit is crystallised, such
releases are possible and the Trustees do make such releases…..”
“To enable early releases (under our pension scheme) by active or deferred
members would require the running of debt accounts and consequent
commutation calculations at benefit emergence. Again, this may be
burdensome and difficult to explain to members”.
In a Choice of Fund environment the ability to access funds under early release provisions
may become one of a number of distinguishing features between accumulation style funds
while difficulties may still exist for members of defined benefit funds. However, using the
availability of early release as a selling point for the fund would severely undermine
retirement income policy.
To date there is some, but limited, evidence of fund members rolling over benefits merely
to gain access to the early release rules.
Removing the right of access to early release provisions would immediately achieve a
uniform position across all funds.
Income support payments
Q.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?
In the absence of a more complete set of rules for considering claims, the inclusion or
exclusion of various payments becomes a moot point.
While some consider that receipt of any government income support benefit could be an
appropriate and objective threshold test to provide a consistent eligibility criteria, a counter
view is that a benefit such as Austudy results from the conscious choice to pursue studies,
which can be considered an avoidable circumstance and which is common to many youth.
The release of super savings on a regular basis to such a category of persons could have a
significant impact on final retirement incomes.
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The particular circumstances outlined in the question may counter some particular
anomalies raised in recent cases attracting media attention but the ease of administration by
trustees also needs to be considered. Such discretionary cases may be better evaluated
under an expanded compassionate release provision that is assessed by a centralised
A further example of the difficulty in setting the rules is evidenced with Commonwealth
Development Employment Project Scheme (CDEP or “work for the dole”) payments. In
some cases the payment is the sole source of income for people and, when used in this way,
it is virtually identical to other forms of income support payment that qualify a person for
consideration of early release of super on the grounds of severe financial hardship. It can
be viewed as a subsistence level payment much like its Social Security counterpart.
However, the CDEP scheme is also used to provide a base level of remuneration for other
people who are actually employees of certain employers. When used in this way, the
employee is in effect paid a non-subsistence salary or wage, part of which is recouped by
the employer from the CDEP program and part of which is funded through other means.
While technically, these recipients of CDEP also qualify for consideration of early release
on the grounds of severe financial hardship once they have been in receipt of the CDEP
payments continuously for six months, in practice they are usually not genuine hardship
The differing circumstances of people receiving the same basic benefit creates difficulties
for fund administrators and trustees when processing claims. It highlights the need for
individual assessment of each claim and this does not come without cost to the fund.
The Austudy and CDEP programs are both examples of the problems that may be
associated with both over-prescriptive and under-prescriptive guidelines. Again, there may
be benefit in developing a more objective (and tighter) hardship provision to be
administered by funds and trustees with the more complex / discretionary cases to be
evaluated by a centralised agency.
However, as indicated in the introduction ASFA’s preference is for all claims to be
processed by a centralised agency in order to achieve a cost effective and consistent
Q.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?
While the requirement to be in receipt of income support payments for a continuous period
of 26 weeks may be viewed as onerous it is a simple threshold test which is clearly
understood by those seeking access.
The test was raised as an issue by several ASFA members in the context that many of the
people on income support payments are in dire financial circumstances long before the 26
weeks have expired. This is particularly so for those who are in and out of work on a
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Of equal concern however, was an apparent inconsistency across the industry of the
application of the associated subjective tests which could result in persons in identical
circumstances achieving different outcomes, and whether superannuation savings for
retirement should be regarded as a standard top up for people receiving unemployment or
Q.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
As with any subjective test, the real problems arise with variations in the application of the
test. The problem is exacerbated when the application of the rules is not only spread
between many people, but also between many organisations each with their own culture for
processing the claims.
There was a preference expressed by ASFA members for a single approving authority with
the retention of some form of subjective test. The difficulty for many funds appears to lie
in the gathering of relevant supporting documentation sufficient for the trustee to satisfy
their statutory obligations. For other funds this problem is solved by applying a lower
evidentiary threshold, perhaps safe in the knowledge that a decision to release the money is
unlikely to be challenged.
While some preference was expressed for placing the function with “the government
agency that is currently providing the member with income support”, ASFA would have
some concern if the focus becomes the immediate need without sufficient understanding of
the policy objectives of compulsory superannuation savings and the preservation rules. The
staff of the authorising agency would also need to be able to provide financial planning and
life skills for the process to be truly effective.
What is required is an agency / organisation that people can go to which has the capacity to
assist these people to gain the life skills sufficient to handle their immediate and future
financial affairs. In appropriate, and perhaps unusual cases, approval could be given for
trustees to release an appropriate part of the member’s benefit. For many benefit claimants
the automatic early release of money only serves to postpone the need to solve the person’s
fundamental financial problem.
In summary, and as indicated in the introduction, ASFA’s preference is for all claims to be
processed by a centralised agency in order to achieve a cost effective and consistent
Q.11 Are there problems in assessing claims of financial hardship where a person may
be a member of more than one fund?
The issue for funds in assessing financial hardship is that, apart from the letter from the
income support payment authority, the funds are totally reliant on the honesty of the
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claimant. It is arguable that the issue of members claiming from multiple funds and other
associated issues such as which fund should process the claim could, in large part, be
resolved through the use of a centralised claim processing authority.
Alternatively, the release of funds needs to be conditional upon an original letter or
authentication from Centrelink that a claim is being sought from that fund only.
A centralised processing approach, as set out in the introduction, would overcome this
Q.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?
ASFA questions, and has always questioned, the appropriateness of a set of rules for
trustees which grant such wide discretion, and require such a subjective analysis. The
difficulty arises through the requirement to examine the family situation, not just the
situation of the applicant.
However, in the absence of a truly objective test, the APRA guidelines are viewed
favourably and are followed by many trustees, though the presence of the standard APRA
disclaimer devalues the guidelines. The use of an “all care, no responsibility, use at your
own risk, seek your own independent advice” disclaimer as a preface to APRA guidelines
leads to an awkward situation for trustees. Some trustees choose to slavishly follow the
guidelines safe in the knowledge that it is the regulators view while others find little
comfort in relying on a document that the regulator can disown.
Many trustees who follow the guidelines strictly (because it is the regulator’s view of the
law) regard them as being too inflexible. In this context, and as noted by the Committee in
the discussion paper, we highlight the decision in D01-02\12 which called into question the
practice of following any pre-set guidelines, whether they be set by the trustee or the
regulator, when considering early release applications. This is particularly so when it is a
subjective test that is being applied such as "being unable to meet reasonable and
immediate family living expenses".
The more subjective the test, the greater the difficulty in processing the claim. This
increases processing costs and potentially increases the likelihood of a decision being
challenged. There appears to be a general preference for a tightening of the guidelines for
financial hardship (with perhaps a balancing adjustment made in another early release test
to be administered by a single agency).
Fund trustees should not be required to exhaustively apply a series of subjective tests. The
mere fact that the test is subjective will always leave it open to challenge. Despite the best
efforts of the trustee, the SCT, standing in the shoes of the trustee, may arrive at a different
result on the same evidence. As noted below the SCT’s recent decision to overrule fund
guidelines compounds this difficulty.
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The recent divorce and super legislation had the potential to place trustees in a similar
situation. The government, rightly in ASFA’s view, gave the external body (the family law
court, or by agreement of the affected parties) the right to decide how the superannuation
asset was to be divided. The task of the trustee becomes one of implementation.
ASFA regards the assessment of “hardship” as it relates to an individual (and their family)
as being of a similar nature. ASFA’s stated preference for all claims to be processed by a
centralised agency would overcome these assessment difficulties.
Q.13 Is there difficulty in assessing the genuineness of claims? If so, what could be
done to assist trustees?
Assessing the genuineness of claims is a difficult aspect of applying the early release rules.
It is difficult for trustees to meet their prudential responsibilities without being overly
intrusive into the personal affairs of their members. The financial behaviour of individuals
can make the task more difficult. Some claimants allow bills to accumulate. For them the
evidentiary task is simple. However, in circumstances where the bills are paid leaving no
money for basic needs the claimants task is more difficult.
The situation appears to be more difficult where there is limited direct contact between the
fund and the member and many trustees question why this task is assigned to them at all.
A further difficulty for funds is that in many instances the member needs financial guidance
more than they need the financial assistance of the fund. It is in this area that an
independent external assessor could, in addition to solving the immediate problem, assist
the member to achieve longer-term goals.
Adoption of the ASFA preference for all claims to be processed by a properly resourced
and tasked centralised agency could in large part overcome the problem and result in a
more cost effective and consistent approach.
Q.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
As indicated in Section 2 the average payment is less than $5,000. There was general
agreement from ASFA members that the current payment limits are sufficient to handle the
vast majority of cases. Provision could be made for those few cases where the current limit
is insufficient to be evaluated through a separate process.
Q.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?
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It is difficult to see that the placement of an upper limit on people who have reached
preservation age could be justified.
Few comments were made in this area by ASFA members as release of benefits on
compassionate grounds is determined by the regulator, with the trustee’s task limited to the
release of the funds on receipt of a direction from APRA.
Where comments were made, there was a consensus that the distinction between mortgage
payments and rent is unjustified. A view was formed that a tightening of the financial
hardship criteria could be balanced by a broadening of the grounds for compassionate
The regulator should be tasked with reviewing, considering and assessing all claims for
compassionate release and should be required to construct a set of guidelines for release
that are framed in the context of compulsory superannuation being provided for retirement
Extension of the However, as indicated in the introduction ASFA’s preference is for all
claims to be processed by a centralised agency in order to achieve a cost effective and
Q.16 Are the grounds for release for medical treatment adequate? Should they be
tightened or made less restrictive in any way?
Q. 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?
Q. 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 people?
Q.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
Q.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?
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Q.21 Are there any difficulties in obtaining funds quickly to meet mortgage
repayments? If so, what could be done?
Q.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
Q.23 Is APRA’s residual discretion to release benefits to meet other expenses
consistent with the specified grounds necessary and appropriate?
Q.24 Should any other matters be added to the list of prescribed expenses for release
on compassionate grounds? Why?
Q.25 Is a list of defined criteria preferable to a broad discretion to release funds on
compassionate grounds? Why?
Q.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?
There is the potential for adverse impacts. Movement from one qualifying benefit to a
similar, but non-qualifying, benefit can see a member having to restart the qualifying period
without there being a fundamental change in financial circumstances. For example moving
from Newstart allowance to do a short training course then restarting the Newstart
If so, what are those problems? How might they be addressed?
We understand that in some cases the money, or a portion of the money, released is counted
in the income test for the benefit. However we have not had time to do thorough research
in this area.
Q.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?
ASFA members have not provided any evidence that government agencies are requiring
income support payment claimants to first access their superannuation benefits.
However, if this were the case, ASFA would take a dim view of the practice.
Superannuation benefits are accumulated under the government’s retirement incomes
policy. To require people of non-retirement age to access the benefits prior to retirement
would be against both the spirit and the intent of the policy.
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Q.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 direct impact has been reported by fund trustees. However, in the longer term, a review
of the ages of benefit claimants may reveal some impact.
Many people who were forced to commence allocated pension products under the old rules
are now being asked by financial and other advisers to consider whether they would benefit
by rolling the allocated pension asset back into an accumulation account.
The Superannuation Complaints Tribunal
Q.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’s
The general practice in the industry is, when advising of any trustee decision, to advise
members of both their appeal rights and the appeal process.
The significant number of cases where the Tribunal is unable to review a case because the
basic threshold test has not been met would indicate that the current processes for funds
advising members of the basic rules may need reviewing.
Q.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?
The SCT’s latest quarterly statistical bulletin reports “release of benefit” represent 4.2% of
written complaints received in the quarter (20 out of a total of 471 written complaints
received), and 1.3% of open cases (12 out of 891) at the end of the quarter.
The SCT’s role in deciding whether trustee’s decision was unfair or unreasonable in
relation to the complainant seems well suited to reviewing discretionary decisions and
ASFA generally supports the role of the Tribunal. However, ASFA does not believe that
the SCT should be involved in the review of early release for hardship. The SCT’s current
role and practice ignores the fundamental issue as to whether trustees should be required, or
in deed expected, to apply such a subjective test for which many have neither the training
nor the experience.
It could be argued that to evaluate a claim and approve the early release of money to solve a
current situation without regard for the member’s future position in retirement, or without
also attempting to resolve the underlying cause, is a breach of the trustee’s fundamental
duty towards the member. It is an invidious position for the trustee to be put in.
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As noted above a suitable and properly resourced, third party is the preferred course of
action. In the absence of this ASFA is concerned that the SCT appears to have difficulties
with funds developing internal guidelines for the assessment of hardship cases, particularly
when a guideline has already been issued by the regulator. In ASFA’s view, such
guidelines are helpful and assist consistency of treatment within that particular fund at least.
It should be noted that, as the amounts being disputed are invariably small, mere referral to
the SCT may have led a number of funds to change their decision to avoid unnecessary cost
to the fund. This does not seem to be an appropriate result either.
Q.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?
While ASFA is unaware of the processes adopted by the SCT, ensuring that either the fund
or the SCT provides complainants with a copy of the APRA guidelines and sample
statutory declaration forms should assist the speedy resolution of the complaint.
Q.32 Should any changes be made to complaints about APRA’s decisions in relation
to release of benefits on compassionate grounds?
While no comment was offered by ASFA members on this point, it is noted that such
decisions can be reviewed by the Commonwealth Ombudsman.
The role of financial advisers
Q.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?
There was a strong view expressed by ASFA members that there is a potential for
unscrupulous financial, and other, advisers to exploit the system, taking advantage of the
ignorance and desperation of members. ASFA understands that the regulators are currently
taking a close interest in the activities of one particular company.
With clearly set out guidelines and assistance from the fund, members should be able to self
assess the likelihood of making a successful claim. The introduction of third parties into
the process brings with it connotations of “sharp operators” exploiting “loopholes in the
rules”. Charging a fee for assisting these people does not sit neatly with the fundamental
reason for their seeking early release.
Funds could assist in the process by adopting basic steps such as advising members of the
process involved in seeking early release, giving assistance to claimants where necessary,
and determining an appropriate method for remitting the benefit.
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Q.34 Are any steps being taken to protect fund members from unscrupulous advisers
in circumstances such as those outlined above?
Apart from some public education in the form of press releases on unscrupulous advisers by
APRA, and the reporting of specific cases to the regulator, ASFA is unaware of any general
steps being taken in this area. At a minimum, where funds are released to pay debts they
should be directed to the specific debtor(s). Funds should not be released to non-debtor
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