Accessing super: Reaching preservation age and retiring

The requirements of different super funds vary, but most will generally require you to sign a form that declares you have met the retirement condition of release. They may also require a declaration from your employer. You’ll also have to provide appropriate proof of identity before any of your super funds will be released after you’ve retired.

It’s important to understand that trustees of super funds (including self-managed super funds) need to ensure that they comply with super legislation when paying benefits to fund members, otherwise harsh penalties can be imposed on them by the Australian Taxation Office (ATO). You should also be aware that the ATO will most likely quickly become aware if you aren’t retired and you’re still earning income from gainful employment.

Are there any limitations on how you can access your super benefits when you retire?

No there’s not. When you’re eligible to access your super because you’ve met the retirement condition of release, you can choose to take your super payments as a lump sum, as an income stream (also known as a superannuation pension), or as a combination of both. However, it’s important to consider the tax implications.

What are the tax implications?

If you’re aged 60 or over when you retire, you can access your super funds tax-free, regardless of whether you receive lump sum payments, an income stream, or a combination of both.

If you’re under 60, you may have to pay tax on any super payments you receive, regardless of the type of payment you get. The amount of tax you’ll have to pay depends on whether your payment contains a taxable component, a tax-free component, or a combination of both. Learn more about the tax implications of retiring before the age of 60.

The tax-free component includes any voluntary non-concessional (i.e. after-tax) contributions you may have made to your super fund. These contributions are not taxed in the fund.

The taxable component includes any concessional (i.e. before-tax) contributions made to your fund (such as the 9.5% employer superannuation guarantee), as well as any salary sacrifice payments you may have arranged with your employer. These concessional contributions are taxed on payment to your super fund at 15%.

Can you change your mind and go back to work later?

If you retired under the age of 60 and accessed your super, you can return to work provided you can prove that your intention to retire was genuine when you made it. For example, your personal circumstances may have changed since you retired. You may need to provide proof of these changed circumstances to the ATO or your super fund.

If you retired between the ages of 60 and 65, you can get a new job with a different employer, as mentioned earlier in this article. You will have still met the ‘ceased employment’ condition of super release.

If you’re 65 or older, you can return to work any time because reaching 65 is also a condition of super release. However, you’ll only be able to make further contributions to your super fund if you satisfy the work test and you’re no older than 74. To satisfy the work test, you must work a minimum of 40 hours in any consecutive period of 30 days.

Can you work part-time?

Once again, the answer depends on your age.

If you’re under 60 years of age and you’ve reached your preservation age, you can’t work part-time and still be eligible to access your super. That’s because part-time work is classed as 10 to 30 hours per week in Australia and is regarded as gainful employment. As mentioned earlier in this article, you can’t access your super if you’re under 60 and gainfully employed.

However, if you’re aged over 60, you can work part-time and still access your super provided that the role is with a new employer, not the employer you left to in order to meet your retirement condition of release.

Other conditions of release

Besides retiring, other common superannuation conditions of release are:

• Reaching your preservation age and beginning a transition-to-retirement income stream (TRIS).
• Ceasing an employment arrangement once you’ve reached the age of 60, even if you get another job.
• Reaching 65 years of age, even if you haven’t retired.
• Death

You can also access part of your super prior to reaching your preservation age in special circumstances, such as:

• If you become permanently or temporarily incapacitated.
• If you’re suffering severe financial hardship or from a terminal medical condition.
• On compassionate grounds.

The bottom line

Retiring is one of the ways you can access your super after you have reached your preservation age. If you retire after the age of 60, your super payments are tax-free. However, if you retire before the age of 60, there are tax implications even if you’ve reached your preservation age.

You should seek independent professional advice to understand the tax implications and whether retiring is appropriate for your individual financial circumstances.

The information contained in this article is general in nature.