SME owners warned – touch your super early and you could go to jail

Financial advisers have warned SME owners to be careful how they access their superannuation, following the two year jail sentence imposed on a NSW super fund trustee who allowed clients to access his DIY fund.

Gerard Karl Little, of Castlecrag, New South Wales was sentenced to two years jail with a minimum of eight months for allowing 121 members of his self-managed super fund, Little Superannuation Fund to access a total of $3,531,056.93.

Little rolled the money over from 11 complying superannuation funds and retained a $685,000 commission. The District Court of New South Wales found Little knew he had an obligation to preserve the benefits until the superannuants had satisfied a condition of release but had no intention of doing so.

But Andee Sellman, chief executive of financial adviser The Financial Fence, says the continuing effects of the global financial crisis mean there is an “absolutely huge” temptation for SME owners to access their superannuation.

“The Government stimulus didn’t really flow on to small businesses and when you’re a small business owner and over the boom cycle you’ve been borrowing for debt and that’s not available anymore, the temptation to access super is enormous.”

“The debt to asset ratio became out of hand for a lot of businesses, and many people in high debt get to the point where they can’t borrow any more money and the superannuation that’s sitting there is the only source of funding that’s left available to them.”

Sellman warns business owners to remember that any superannuation removed from funds should be considered borrowed money, and replaced as early as possible.

“It may be necessary for some to access a little bit of super to get over the hump, but that has to be replaced in the same way debt does. It’s a temporary thing.”

“[Business owners] need to focus it on cashflow so that any equity made comes out of their debt. The goal is to get the debt ratio back in sync.”

But Suncorp superannuation department representative Tahmina Lata says the bank has seen a “huge increase” in requests for early super release over the past year.

“In the last six months especially there has definitely been a huge increase in requests coming in to release money because of financial hardship.”

“Business owners can apply to the Australian Prudential Regulation Authority for early superannuation access on ‘compassionate grounds’ to meet financial obligations such as mortgages and medical costs,” she says.

APRA considers supporting documentation such as bank statements showing that a superannuants current expenses exceed their income.