Q: I turned 60 this year and I have been sick since late last year. I can’t get back to work and need to retire. I am wondering if you can tell me what kind of tax I have to pay if I take my super payment. I didn’t tell them I was retired because I kept hoping I’d soon be better. I seem to be getting worse so just wondering if you can tell me my rights.
A: I’m sorry that you are not well. I have broken up my response into three parts.
- If an individual retires on or after the age of 60, then any super benefits received from a taxed source are tax-free. Most super benefits are from a taxed source, except certain benefits paid from some public sector super funds. If a person has been a public servant for a few years then he or she may want to check with their super fund whether they hold any benefits from an untaxed source’. If they do, then some tax may be payable on those benefits. For detailed information on taking super benefits on or after the age of 60, see SuperGuide article Tax-free super for over-60s, except for some.
- You mention that you have been unwell and your illness has meant that you are unable to work. Before taking the decision to retire, an individual in such a position may want to check whether their super fund account also pays premiums for disability insurance cover, and what circumstances such insurance is payable. In such circumstances, it is worth an individual chatting to their super fund to check entitlements because any disability payout is in addition to your super benefits.
- Under normal circumstances (that is, where a person chooses to retire rather than forced to retire due to ill-health), an individual aged 60 or over, is taken to have retired if an employment arrangement ends. An individual is also considered retired if the individual has reached preservation age (55 years for those born before July 1960, and at least 56 years for those born on or after 1 July 1960), and the trustee of the super fund is satisfied that the individual intends never again to become gainfully employed, either on a full-time or part-time basis. For a trustee to be satisfied, the super fund generally requires a fund member to complete a retirement declaration.
If an individual is aged 65 or over, he or she can automatically access preserved super benefits without proving retirement or another condition of release. Turning 65 is an official ‘condition of release’.
Note: For those seeking information on the tax treatment of super benefits received before the age of 60, see SuperGuide article Retiring before the age of 60: the tax deal.