Be warned: early release schemes for super are scams and the penalties are severe.
The federal government has announced it will introduce specific penalties to crack down on schemes promising the early release of superannuation money.
Until now the Australian Securities and Investments Commission (ASIC) could only chase promoters of such schemes on the basis that they're unlicensed financial advisers.
Meanwhile, individuals persuaded to take part in such schemes end up paying huge tax bills and fines because by withdrawing their money from super they've turned it into income to be taxed at normal rather than concessional rates.
In the worst-case scenario, an individual who sets up an SMSF and knowingly accesses their super under the guidance of such a scheme faces a fine of up to $220,000 and a jail term of up to five years.
The scale of the planned penalties for promoters will be revealed when draft legislation is released.
The senior manager for retail investors at ASIC, Robert Drake, says these schemes work in two ways.
In one version, the promoter will say that if you transfer your money from your fund into their self-managed super fund they'll be able to cash it out for you, keeping some of the money as commission - sometimes as much as 50 per cent.
"They may cash the super out and pass it on to the person, after taking out commission," Drake says, "or they might just steal it."
Alternatively, the promoter may offer to set up an SMSF for you, so that you can transfer your money across and then - with their help - cash it out.
Again, you may see some or none of your money.
In all cases, you'll be penalised for breaking the rules. If you've set up an SMSF, it will become "non-complying" and you'll lose all the tax benefits of super, resulting in a tax bill that could potentially eat up a large chunk of your super. "If someone's saying, 'I can help you get around the rules and get access to your super' even though you're under 55, unless it's a hardship application it's a scam," Drake says.
"And if they're prepared to break the law in that respect they'll be prepared to break the law in other ways, including by stealing your money."
ASIC says people should be wary of advertisements promoting early access to super or offers to "take control of" or "unlock" your super.
Look out for unlicensed operators by checking the professional registers at ASIC Connect (search.asic.gov.au) or consult the Australian Prudential Regulation Authority's superannuation entity disqualification register (apra.gov.au). If you're approached about accessing your super early you should report it to ASIC or to the Australian Taxation Office (ato.gov.au).
A spokeswoman for the ATO says that while promoter behaviour has been a serious issue in the past, "we have not identified a new promoter of illegal early release schemes in the past 18 months".
The ATO now reviews all new SMSFs before they can be listed on its Super Fund Lookup register and can remove suspicious funds from the register.
APRA-regulated funds can transfer or roll over benefits to an SMSF only if it is a regulated SMSF.
Drake says ASIC and APRA have also been working with industry and retail super funds to help them be on guard for rollover requests from dodgy operators. "It's becoming harder to pull off," Drake says of illegal early release.
There are some very limited circumstances in which you can access your super before you reach your "preservation age" - the age up until which your super must stay where it is. This is generally between 55 and 60, depending on when you were born.
You may be able to access your super early if you suffer temporary or permanent incapacity, severe financial hardship, on compassionate grounds (for medical treatment, for instance) or if you have a terminal illness or injury.
You can check your preservation age with the super and pension age calculator at moneysmart.gov.au/tools-and-resources/calculators-and-tools.
- Promoters of illegal
early-release schemes face new penalties.
- Individuals using these schemes also face financial penalties.
- Some schemes keep commissions of 50 per cent.
- Others are a front to steal all your super money.
Frequently Asked Questions about this Article…
What are illegal early release schemes for superannuation and how do they work?
Illegal early release schemes promise to get you access to your superannuation before your preservation age. Promoters often ask you to transfer money into a self‑managed super fund (SMSF) they control or set one up for you, then cash out the balance — sometimes keeping commissions of up to 50% or even stealing the money. Those cash withdrawals turn your super into taxable income and breach the rules, so they’re scams.
What penalties can promoters of illegal early release schemes face?
The federal government is introducing specific penalties to crack down on promoters of illegal early release schemes, with the scale to be revealed in draft legislation. Historically ASIC could only pursue unlicensed advisers, but the new measures will target promoters directly to deter and punish these operators.
What are the legal penalties and tax consequences for individuals who use illegal early release schemes?
Individuals who knowingly access super through an illegal scheme face serious consequences: an SMSF can become ‘non‑complying’, you’ll lose super tax concessions and could face a large tax bill, and in the worst case you may be fined up to $220,000 and face up to five years’ jail. Withdrawn super may also be taxed at normal income rates rather than concessional super rates.
How can I spot a scam or dodgy operator offering to ‘unlock’ or ‘take control of’ my super?
Be wary of advertisements promising early access, offers to ‘unlock’ or ‘take control of’ your super, or anyone who guarantees access despite being under preservation age (unless it’s a legitimate hardship or compassionate grounds claim). These are common red flags for SMSF scams and illegal early release schemes.
What legitimate circumstances allow early access to my superannuation?
You can only access your super early in very limited, legally defined situations: temporary or permanent incapacity, severe financial hardship, on compassionate grounds (for example certain medical treatment), or if you have a terminal illness or injury. Your preservation age — generally between 55 and 60 depending on when you were born — also determines when you can access it normally.
How can I check whether an adviser or SMSF is legitimate before agreeing to a rollover or transfer?
Check professional registers and government lists: search ASIC Connect (search.asic.gov.au) to verify licences and use APRA’s superannuation entity disqualification register (apra.gov.au). APRA‑regulated funds will only transfer to regulated SMSFs. The ATO also reviews all new SMSFs before they appear on its Super Fund Lookup register and can remove suspicious funds.
What are regulators doing to prevent illegal early release of super?
ASIC, APRA and the ATO are stepping up protections: the government plans new penalties for promoters, ASIC and APRA are working with industry and retail funds to spot suspicious rollover requests, and the ATO now reviews all new SMSFs before listing them and can remove suspicious funds. Regulators say it’s becoming harder to pull off these illegal schemes.
If I’m approached about accessing my super early, who should I report it to and where can I get help?
If someone approaches you about accessing super early, report them to ASIC or the Australian Taxation Office (ATO). You can also check your preservation age and legitimate pathways to access super with the MoneySmart super and pension age calculator at moneysmart.gov.au/tools-and-resources/calculators-and-tools.
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