What to do about super when an employee leaves your business

Your normal obligation to pay super applies to the salary or wages portion of an employee’s last pay. The amount related to termination of employment is generally not qualifying earnings (QE) for super purposes, so you don’t need to pay Super Guarantee (SG) contributions on it.

There is an exception to this general rule if you provide a payment in lieu of notice to an employee. When you are terminating a worker’s employment for any reason, you must provide them with a minimum notice period as set out in the National Employment Standards (NES). The employee can work during their notice period, or you can provide them with payment in lieu of notice.

If a payment in lieu of notice is provided, it qualifies as earnings for super purposes and you must pay SG contributions on it.

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What is the process when an employee retires?

Generally, you don’t have any extra obligations for employees who are retiring. It is up to the worker to contact their super fund to access their savings if they are eligible to do so.

However, if you’re contributing to a defined benefit fund, you may need to notify the fund of the reason for leaving employment, as this can affect the final benefit payable from the fund.

When an employee leaves employment on or after their 60th birthday, they can access their super. However, if they are under 60, access to super is not immediately available unless they meet another condition of release, such as permanent incapacity.

If an employee retires before turning 60, they can access their super from their 60th birthday by declaring to their super fund that they have permanently retired from gainful employment.

When your employee does have access to their super, it can be paid as an income stream, a lump sum or a combination of both:

• Income stream (super pension or annuity): A series of regular payments from the super fund.
• Lump sum: A single payment that withdraws some or all of the super benefit. With a lump sum withdrawal, the money is no longer within the super system. If it’s then invested, any investment return is taxed like normal income, not super.

It’s not compulsory to withdraw super after retiring. Your employee can keep their savings in a super accumulation account for as long as they wish.

Superannuation withdrawals are tax-free for people aged 60 or more, unless the amount is paid from an untaxed super fund.

Useful resources for your retiring employees

If you have an employee who is retiring, they have several decisions to make. That means they’ll need lots of information about their finances – and their super in particular.

Government agencies offer some free services to help people plan for their retirement. If your employee asks for help, you could direct them to the following resources:

• ASIC’s Moneysmart website
• Services Australia’s Financial Information Service.

You could also suggest they explore the content available on SuperGuide. We offer more than 500 articles, how-to guides, checklists and tips covering retirement planning, tax-effective investment and retirement strategies, as well as detailed guidance on how to enjoy retirement.

Some particularly helpful content for people about to retire includes:

• How to turn your super into retirement income
• How to maximise your Age Pension
• Retiring soon? Here are 6 questions you need to answer first