Can I use super to pay my mortgage?
YOURLifeChoices member Tony is trying to reduce his debt by paying off some of his mortgage with funds from his super. Craig Hall of NICRI advises if this is possible.
At 57 I believe I can now access the money in my super. I still have quite a large mortgage and while I can make the repayments, I would like to reduce my outgoings so I could possibly reduce my working hours. Is it possible to take $200,000 from my super and pay off half my mortgage?
A. Provided by Craig Hall, NICRI
I refer to your question regarding accessing your superannuation. Access to superannuation requires the member meeting a ‘condition of release’. One of those is reaching preservation age (currently age 55) and being permanently retired. Whilst you have reached preservation age, you are still working. This means that you are unable to access a $200,000 lump sum until you:
- permanently retire (tax may be applicable while under age 60); or
- have a change to your conditions of employment after reaching age 60, such as changing employer or going from full time to part time with the same employer, thus creating an unrestricted non-preserved component; or
- have enough ‘unrestricted non-preserved’ funds you can access (this may include benefits for which a member previously satisfied a condition of release and elected to keep the money in the fund, or from certain personal contributions made prior to 1 July 1999). You would need to refer to your fund for this information; or
- reach age 65 in which case you can access the funds whether working or not.
So the likely short answer to this question, as it stands is no. However, you can access part of your superannuation under a ‘Transition to Retirement Pension’ (TRP) arrangement.
Click NEXT to find out more about TRP arrangements.
TRP’s tend to be used by those aged between 55 and 64 who are still gainfully employed and who may wish to reduce their hours and/or have a reduction of income. A TRP is structured similarly to an Account Based Income Stream (ABIS), but only allows access of up to a maximum of 10 per cent of the balance (as of 1 July) each financial year. While you may not be able to access $200,000 in one go (unless your balance is above $2million) you may access some of the funds and pay off the mortgage. This in turn would free up some of your employment income or may go towards replacing the reduction of income if you reduce your work hours.
There are potential advantages and disadvantages with this approach as well as other considerations. The advantages may include:
- Any amount of superannuation converted to a TRP, or an ABIS for that matter, has no tax applicable to any earnings it generates, unlike money in the accumulation phase (of a taxable fund) where earnings are taxed at up to 15 per cent;
- Allows you to cut back on work hours with the TRP replacing the reduced income;
- It would likely result in a reduction of interest charged on the mortgage and a reduction in time to pay it off due to extra payments being made.
The disadvantages may include:
- A reduction of the superannuation benefit to use in retirement;
- Less money in super may mean missing out on potential capital growth and high earnings if markets were to perform strongly and if your funds were exposed to those markets, up until your retirement.
Other considerations may include:
- Up until age 60 a portion of your superannuation drawdown (using a TRP or ABIS) form part of your taxable income, however, a 15 per cent offset applies. The ‘proportional’ method is used to determine your assessable component;
- The asset allocation of the fund would need to be revisited keeping in mind the time frame to access a portion of the funds is ‘short term’;
- The whole amount in the fund becomes accessible once you permanently retire or reach age 65, whichever comes first;
- If you decide to continue with your current level of work hours, thus maintaining your current income level, you may also consider maximising your superannuation and potentially receive taxation concessions by salary sacrificing some of your employment income.
For more information on TRP’s refer to NICRI’s previous YOURLifeChoices article, Ease into Retirement.
As you can see there are quite a few considerations, some of which are quite complex and relate to the your individual circumstances. NICRI would suggest that professional advice be sought so that these, and any other issues relevant to you, can be considered. NICRI also has information on this topic, useful loan and ABIS calculators as well as information on the various ‘conditions of release’, which is available to consumers free of charge.
I hope that this information has been helpful. If you have any further questions please don't hesitate in contacting NICRI on 1800 020110 or via email at firstname.lastname@example.org.
It is important to note that the National Information Centre on Retirement Investments Inc (NICRI) does not provide or imply financial advice. Any information provided is on our understanding of legislation and we suggest that you confirm details with relevant government departments and seek professional advice before proceeding.
NICRI information leaflets are also available on its websites www.nicri.org.au © and http://moneymap.nicri.org.au.
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