Many aspects of the recent Federal Budget provided welcome relief to Australians, but possibly none will provide a more positive benefit for its recipients than the extension of superannuation access for the terminally ill.
Currently, an individual with a terminal illness has to have two medical practitioners certify that they have less than twelve months to live in order to gain unrestricted, tax-free access to their superannuation. That timeframe will now be extended to two years.
Aside from the difficulties associated with providing an accurate determination of life expectancy, the twelve-month ignored the fact that gaining access to super is often to afford expensive medical procedures, or to enjoy what time remains to the full. By the time an individual has less than twelve months to live, they are far more likely to be beyond the help of medical treatment and poor health associated with their illness is more likely to restrict any enjoyment they might get from their savings.
It is understandable that the government is hesitant to allow full access to super – the whole purpose of super incentives such as low tax rates is to ensure that you are self-sufficient in retirement and therefore not a financial burden on the country. Terminally ill patients who beat their illness after spending their life’s savings would then be penniless and needing assistance heading into retirement. The increase to two years is a welcome start, but more still needs to be done.
We are all told early detection is the key to beating serious illness. Perhaps the government could follow this example by providing earlier financial access via equally portioned access to super relative to the number of years you are expected to live, with annual reviews allowing for changes – either positive or negative. For example:
You have $150,000 in super and are diagnosed with an illness and given five years to live. Using the government’s criteria, you would have no access to your superannuation. Using the apportionment process, you would have access to $30,000 of your super for each of the five years; however, if after a year of treatment your life expectancy is still five years, access would be reduced to $24,000 each year ($120,000 divided by 5, assuming the full $30,000 was spent in year one). If on the other hand, you were diagnosed to only have three years left after year one, your access would increase to $40,000 ($120,000 divided by three). Should your diagnosis drop below the two-year threshold, you would then have access to the full amount, while a medical clearance at any stage would halt access.
A formula such as this would allow greater access sooner for those fighting terminal illness, yet still protect a portion of their super should they recover (if your diagnosis never drops below three years, you would never have access to more than one third of your remaining super in any year). In the meantime, the extension to two years is a decent start in providing welcome relief to a portion of the community that truly needs it.
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