Accessing super: Reaching preservation age and retiring

It’s important to understand that where super is concerned, retiring is different from ceasing an employment arrangement when you’re over 60.

Once you turn 60, you can access your super when you leave a job (that is, cease employment), even if you get a new job with a different employer. However, you can only access the super benefits you’ve accumulated up to that point in time. Any super you accumulate with your new employer must be preserved until you meet another super condition of release (such as turning 65).

How do you apply for your super benefits when you retire?

The requirements of different super funds vary, but most will ask 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 must also provide appropriate proof of identity before any of your super funds will be released after you retire.

This might seem like bureaucratic box-ticking, but trustees of super funds (including self-managed super funds) need to ensure that they comply with super legislation when paying benefits to fund members. Failure to do so can attract harsh penalties by the Australian Taxation Office (ATO).

Also be aware that the ATO will soon know if you aren’t retired and you’re still earning income from gainful employment.

Are there 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 withdraw your super as a lump sum, as an income stream (also known as a superannuation pension) or as a combination of the two.

Before you elect how and when you want to access your super, 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 tax free, regardless of whether you receive lump sum payments, an income stream or a combination of the two.

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 will depend on whether your payment contains a taxable component, a tax-free component or both.

The tax-free component includes any voluntary non-concessional (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 (before-tax) contributions made to your fund. This includes the 10% employer superannuation guarantee, as well as any salary-sacrifice payments you may have arranged with your employer and personal contributions you claim a tax deduction for.

These concessional contributions are taxed at 15%, or 30% if you earn more than $250,000 a year, as they are paid into your fund. Except for personal concessional contributions, where tax is not deducted until after you sign and return a notice of intent to claim a tax deduction form to your fund.

Can you change your mind and go back to work?

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 at the time. For example, your personal circumstances may have changed since you retired so you need to earn extra cash. 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 without needing to show just cause, as mentioned earlier in this article. That’s because you have 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 superannuation condition of release. However, once you turn 67 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 and you’ve reached your preservation age, you can’t access your super and continue to work part time. 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, 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 the role is with a new employer, not the employer you left to meet your retirement condition of release.

Other conditions of release

Notwithstanding all the above, there are some circumstances where you can access your super without retiring. Some of these additional conditions of release are:

• Reaching your preservation age and beginning a transition-to-retirement income stream (TTR or TRIS)
• Ceasing an employment arrangement once you turn 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.

For a limited time, early release of up to $20,000 was available to super members who suffered financial hardship due to COVID-19.

The bottom line

Retiring is one of the ways you can access your super after you reach 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.