I’m 60. Why can’t I access my super benefits?

Q: My husband turned 60 years of age in October 2010, and he has $80,000 in his super fund. We would like to withdraw his entire super as we need the funds to purchase a house. Due to his age we need a deposit of $100,000 before the bank will lend us the money for the house. He is currently employed full time and will be working for many years yet. We have sent the super fund all the documents to receive the funds, but they are now saying that he has to resign from his current employer before he can receive the money from the super. He will then be able to reapply for his job again and that is the only way he can get the money. We are of the understanding that because he is 60 years of age he is legally entitled to the money. Can he still receive the super if he is working full time? Could you please reply asap as we only have a very small amount of time as we need to exchange contracts for the house as soon as possible.

A: Reaching the age of 60 doesn’t automatically entitle a super fund member to his or her super benefits. The special rules for accessing super benefits that apply when an individual turns 60 relate to when the individual terminates an employment arrangement on or after the age of 60. I explain this in more detail later in the article.

Although tax-free super is available on or after the age of 60 for most Australians, accessing super benefits requires an individual to satisfy a condition of release. If an individual has reached 60 years of age and doesn’t want to retire, then a transition-to-retirement pension (TRIP) may be an option, but an individual can only access up to 10% of his or super benefits (see later in the article) via a TRIP.

The special rules that apply to superannuation mean that you cannot access your super benefits until you:

1.     Reach your preservation age and retire, or

2.     Satisfy another condition of release.

1. Retire on or after reaching your preservation age

Your preservation age is based on the year that you were born. For anyone born before 1 July 1960, the preservation age is 55. The preservation age steadily increases until it reaches 60 years of age for those born on or after 1 July 1964 (see table below).

Although you must have reached your preservation age to access your super benefits, merely reaching that specified age, or even reaching the age of 60, is not sufficient to unlock your super benefits. Your super benefits remain ‘preserved’ until you satisfy a condition of release. ‘Preserved’ for the purposes of superannuation simply means locked away, rather than protected or guaranteed.

Source: Created from information available on the Australian Taxation Office superannuation website (www.ato.gov.au/super)

2. Satisfy another condition of release

Satisfying a condition of release means your preserved benefits can become unrestricted or unlocked — that means you can access your super now, provided the rules of your fund also let you cash your super.

The most common conditions of release are:

• Deciding to retire on or after preservation age. You have unlimited access to your super benefits when you retire on or after your preservation age (refer earlier). Depending on your birth date, preservation age can be age 55, 56, 57, 58, 59 or age 60.

• Cessation of employment on or after the age of 60. Special ‘retirement’ rules apply for an individual who terminates an employment arrangement on or after the age of 60. Where a person is aged 60 or over but under the age of 65, and ceases an employment arrangement, then the person can be considered ‘retired’ for the purposes of accessing preserved super benefits. If an employment arrangement continues however, then turning 60 on its own is not considered a condition of release.

• Reaching the age of 65. By turning 65 you can have unlimited access to your super benefits as a lump sum or income stream, and you don’t have to retire if you don’t want to.

• Starting a transition-to-retirement pension (what I call a TRIP). TRIPs are special superannuation income streams (superannuation pensions) that enable individuals aged 55 to 64 to continue working while drawing down on super benefits. The maximum amount that can be withdrawn each year is 10 per cent of the account balance, and a minimum amount must be withdrawn each year. If you later choose to retire then you can have unlimited access to your super benefits. Taking a TRIP can have tax advantages but you will need to chat to your accountant or super fund about this option.

Note: Although most super benefits are ‘preserved’ until you reach preservation age AND satisfy a condition of release, some Australians who have had superannuation accounts prior to 1999 may also have some ‘unrestricted non-preserved’ benefits which they can access at any time. You can check with your super fund if you believe you may some ‘unrestricted non-preserved’ benefits.

Remember: You don’t have to withdraw your superannuation benefits by a certain age. You can choose to leave your super account untouched indefinitely. If this is what you decide, your super account will remain in accumulation phase. Accumulation phase means that you haven’t started an income stream with your superannuation account. If you make this decision however, your super account’s earnings will continue to be subject to up to 15 per cent tax on fund earnings, because the fund assets remain in accumulation phase. In contrast, earnings on super benefits in pension phase are free of earnings tax.

You can read about the other conditions of release in the article Accessing super early: 12 legal ways to access your super.