For many individuals, their superannuation is their largest source of savings. So when can you access your super?
The key tenet of the entire superannuation system is to provide individuals with financial resources, sometimes in conjunction with the age pension, during their retirement. An individual’s superannuation savings generally comprise:
- unrestricted non-preserved benefits – (these can be paid on demand at any time and mainly consist of benefits for which a member has already met a condition of release but decided to keep in their fund anyway, and also certain employer termination payments received by the fund prior to 1 July 2004) ;
- preserved benefits – all of the contributions you have made, or made on your behalf, and all earnings since 30 June 1999; and
- restricted non-preserved benefits – employment-related contributions made before 1 July 1999.
In keeping with the above tenet, the latter two categories must be preserved until a condition of release is met, the most common of which is retirement. Whether such a condition has been met is a decision that rests with the trustee(s) of your superannuation fund at the time a release application comes before them from a member. The release conditions cover a wide range of circumstances that may at any point in time be in play for an individual as follows.
In this article
- Turning 65
- Terminal Medical Condition
- Permanent and Temporary Incapacity
- Severe Financial Hardship
- Compassionate Grounds
- Post-Preservation Age, Non-Commutable Income Stream
- Termination of Employment
- First Home Super Saver Scheme (FHSS)
This is perhaps the most common condition of release, and varies depending on whether a member has reached the age of 60 as follows:
1. For a member who has attained the age of 60…
…an arrangement under which a member was gainfully employed has ended and either:
- the member attained that age on or before the ending of the employment, or
- the trustee of the fund is reasonably satisfied that the member never intends again to become employed full-time (at least 30 hours per week) or part-time (at least 10 hours per week).
2. For a member who is under 60 but has attained preservation age…
… an arrangement under which the member was gainfully employed has ended, and the trustee of the fund is reasonably satisfied that the individual never again intends to become gainfully employed either full-time or part-time.
The requirement to at least reach preservation age means that the retirement condition of release cannot be met until members are at least 55. Note that where a member is deemed to have met this condition, accesses their superannuation, but later returns to the workforce…they are not in breach of this condition.
Rather, the trustee need only be satisfied at the time that the member seeks to access their benefits, that they have no intention of returning to the workforce. That they later change their mind in good faith is irrelevant.
Further, the cessation of employment requirement is sometimes problematic for directors – their engagement may not have the character of employment, and thus this condition of release may not be met. To be clear, they must be an employee.
A member who has reached 65 years of age can cash their benefits at any time, irrespective of their employment status. Indeed, they may be in full-time work. There are no cashing restrictions, which means the benefits can be paid as an income stream or a lump sum to the member.
From a taxation perspective, an obvious downside of electing to take superannuation benefits as a lump sum or part lump sum once you have met a condition of release, is that any subsequent earnings on those withdrawn amounts (such as interest) will not enjoy the concessional tax treatment afforded to earnings inside their super fund.
When a member dies, their superannuation fund generally pays a death benefit to their estate, dependent or other beneficiaries. If the recipient is a dependent of the deceased member, the benefit can be paid as a lump sum or as an income stream – any income stream can either be new or a continuation of an existing income stream. On the other hand, if the recipient is not a dependent of the deceased, then the death benefit must be paid as a lump sum and there will likely be tax implications.
Terminal Medical Condition
Access to superannuation can be granted under this condition where a member has a terminal medical condition, and the following requirements are met:
- two registered medical practitioners have certified that the member suffers from an affliction/injury that is likely to result in their death within two years of the practitioner certification being provided, and
- at least one of these practitioners is a specialist in respect of the affliction suffered by the individual.
The relatively recent increase from one year to two years during which the individual is expected to pass, allows a terminally ill person to potentially have a better quality of life for a longer period leading up to their anticipated death.
Permanent and Temporary Incapacity
Contrary to the impression given by some television commercials on this topic, the bar here is high.
‘Permanent incapacity’ arises only where the trustee is reasonably satisfied that a member’s mental or physically ill-health makes it unlikely that they will again engage in gainful employment for which they are qualified by way of education, training or experience (not just any gainful employment). The member’s occupation and nature of the injury are therefore key.
‘Temporary incapacity’ means physical or mental ill-health that caused a member to temporarily cease to be gainfully employed but did not constitute permanent incapacity. It’s not necessary for the member’s employment to fully cease but, generally, a member would not be eligible for this condition of release if they were on paid sick leave from their employment for instance.
Severe Financial Hardship
Despite the COVID-19 hardship access to superannuation no longer available, limited relief still applies for individuals under this standard financial hardship condition. To qualify, a trustee must be satisfied (based on written evidence from the relevant government body or department) that either:
the member has been receiving relevant Commonwealth income support payments for a continuous period of at least 26 weeks and were in receipt of payments of that kind on the date of the written government evidence and was unable to meet reasonable and immediate family living expenses, or
for a member that has reached preservation age plus 39 weeks – the member has received relevant Commonwealth income support payments for a cumulative period of 39 weeks after attaining preservation age, and was not gainfully employed full-time or part-time at the time of making an application to the trustee of their fund.
Therefore, unlike the COVID relief, this condition of release is not designed for members who have experienced a sudden financial shock (e.g. lost their job). Regarding the first of these dot points, the payment must be a single gross lump sum of no more than $10,000 and no less than $1,000 (or a lesser amount if the member’s benefits are less than $1,000). Only one payment is permitted under this ground in any 12-month period.
These exist where a member can demonstrate to the satisfaction of their trustee that they lack the financial capacity to:
- pay for medical treatment (defined as life-threatening illnesses or to alleviate chronic pain or mental disturbance) or medical transport for the member or their dependent
- enable payments to prevent foreclosure over the family home
- pay for home and vehicle modifications to accommodate the special needs of a severely disabled person or dependent
- pay for expenses associated with the member’s palliative care, in the case of an impending death, or
- pay for expenses associated with a dependent’s palliative care, death, funeral or burial.
Generally, there is not a widespread awareness of these trigger points under this condition of release. If satisfied, they can provide welcome relief for members seeking to discharge these very important expenses at what can be a stressful time in their life.
Post-Preservation Age, Non-Commutable Income Stream
This condition of release allows a member who has reached preservation age but has not retired to access their preserved benefits and/or their restricted non-preserved benefits (see earlier) via a transition to retirement income stream (TRIS) provided the super fund’s deed allows for it.
By doing so, they can potentially reduce their working hours, cut their tax (if aged 60 and over, TRIS receipts are tax-free) and maintain a similar lifestyle financially. In simple terms, a TRIS strategy enables you to access some of your super, paid to you as an income, while you are still working. Under these rules, members can only access their superannuation as a ‘non-commutable’ income stream. A non-commutable income stream is one that you can’t convert into a lump sum.
Members start a TRIS strategy by transferring some of their super to a transition to retirement pension account. The two accounts work together and may reduce the overall tax you pay while helping boost your super savings. Since a member is still working, employer superannuation guarantee payments mean your super balance continues to grow. At the same time, they receive money, transferred directly to their external bank account from their TRIS account.
Case study – TRIS
Isabelle has just turned 60 and earns a gross salary of $100,000 per annum (with total tax and Medicare levy of $24,967 for 2023/24). Her take-home pay is therefore $75,033.
Having worked since she was a teenager, Isabelle would like to start easing into retirement by reducing her working week to four days instead of five, resulting in her gross income dropping to $80,000.
Isabelle transfers $100,000 of her super to a transition to retirement account and withdraws $15,000 each year, tax-free. This in part replaces her reduced salary.
Applying 2023/24 tax rates, Isabelle would have a tax liability of $18,067 during the year, including Medicare levy – based solely on her $80,000 taxable income. The TRIS is tax-free for those 60 and over like Isabelle. Her net amount of take-home pay $61,933 ($80,000 – $18,067) and $15,000 TRIS exceeds her net earnings working full-time almost $2,000.
The result of the TRIS strategy is that Isabelle has reduced her working hours, while increasing her net income. Her super balance also continues to grow with her employer still liable for superannuation guarantee payable into her super fund.
On the downside, the annual $15,000 TRIS withdrawal depletes Isabelle’s superannuation balance in her retirement years.
Termination of Employment
A member may cash their preserved benefits and restricted non-preserved benefits (see earlier) from a regulated super fund upon terminating employment (e.g. resignation, retrenchment or dismissal prior to retirement) with a standard employer-sponsor if the benefits are less than $200 at the time of the termination and cashing is permitted by the fund’s deed.
First Home Super Saver Scheme (FHSS)
This scheme is designed to help Australians boost their savings for a first home by allowing them to build a deposit inside superannuation, with the tax concessions inherent in that environment. The FHSSS applies to voluntary superannuation contributions made from 1 July 2017. These contributions, along with deemed earnings, can be withdrawn for a home deposit from 1 July 2018. According to Treasury, for most people, the FHSSS could boost the savings they can put towards a deposit by at least 30% compared with saving through a standard deposit account.
When members are ready to withdraw FHSSS amounts, they can request a release from the ATO to withdraw personal contributions they have made into super since 1 July 2017, along with associated earnings.
If the request is successful, the ATO will issue the trustee of the fund with a release authority letter showing the amount they are required to send to the ATO. Trustees must comply within 10 business days of the date on the letter.
Note from 1 July 2022, the maximum contribution limit per person was increased to $50,000 up from $30,000. This means a couple buying their first home could withdraw as much as $100,000 of voluntary contributions.
The conditions of release are narrow, with the aim of preserving super until retirement – with exceptions generally only for extenuating circumstances. Significant penalties can apply for funds and trustees where amounts are released but a condition has not been satisfied. For this reason, expert advice should be sought if members or trustees are unsure whether a condition of release has been met.
This article is for general information only. It does not make recommendations nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.