Financial Planners and Investment Advisers Sydney North Shore  1300 623 936 rob@mcinvest.com.au

This article focuses on accessing super due to early retirement from the paid workforce. There is a limited range of circumstances under which you might also access your super that are not related to age. Early access to super on the basis of permanent incapacity, terminal medical condition, severe financial hardship and compassionate grounds are not covered here.

January 1, 2021 marked 30 years since the abolition of compulsory retirement on the basis of age in the NSW Public Sector. The idea of forced retirement across the board seems almost bizarre now!

Even though the days of compulsory retirement are – with some very limited exceptions – behind us, 65 remains a significant number in our working life.

For many, it’s the unofficial blessing to retire. For a long time, it was the eligibility age for the pension (for anyone born after 1956 it’s now 67). It’s also the age at which we meet a ‘condition of release’ for our super.

From age 65, you gain full access to your super, regardless of whether you’re working or retiring. From this point, you can start using your super with no cashing restrictions.

But what if you want to retire earlier than 65? You might have done your calculations, feel confident that your super will take you through your non-working years and, for whatever reason, you might be exploring the possibility of accessing your super early. Is this even possible?

Yes, it is, with some strings attached. Whether or not you meet a condition of release before the age of 65 hinges on your age, and your working status.

From age 60 to 64

If you’re between 60 and 64, and an arrangement under which you were gainfully employed has ended, you’re considered retired for the purposes of accessing your super. This is the case even if you don’t intend to retire completely.

From age 55 to 59

For anyone born before 1 July 1964, you may be able to access your super even earlier than 60, possibly as early as 55, depending on your ‘preservation age’. Your preservation age is the earliest age at which it’s possible to access your super, and it’s calculated on your date of birth. The following table lists the preservation ages:

Date of birth

Preservation age

Before 1 July 1960

55

1 July 1960 – 30 June 1961

56

1 July 1961 – 30 June 1962

57

1 July 1962 – 30 June 1963

58

1 July 1963 – 30 June 1964

59

From 1 July 1964

60

If you’ve reached your preservation age, you will satisfy a condition of release, if:

  • an arrangement under which you were gainfully employed has ended, AND
  • you intend never again to become gainfully employed for 10 hours or more each week.

Provided you meet both of these conditions then you will be able to access your super without any cashing restrictions (that is, as you choose).

It’s important to understand that if you access your super prior to turning 60, you may have to pay tax on any payments you receive, regardless of the type of payment you take (either a lump sum or pension). 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.

When it comes to understanding many aspects of super, the devil is in the detail. Accessing super early is no exception. Below we explore some of these details, particularly around the meaning and intention behind certain terms.

What is ‘gainful employment’?

The ATO defines ‘gainful employment’ as being employed or self-employed for gain and reward in any business, trade, profession, vocation, calling, occupation or employment. In other words, working and getting paid for it.

Gainful employment does not include voluntary work and rarely includes earning a passive income or ad-hoc income of a domestic nature, such as being paid to house-sit for a friend.

You don’t need to receive the income directly to be classified as gainfully employed; you can choose to salary sacrifice part or all of it.

How do I demonstrate my intention regarding future work?

In order for a person under 60 to meet a condition of release, the super fund trustee must be reasonably satisfied that the person intends never to again become gainfully employed for 10 hours or more each week. How is this achieved? Usually, the trustee will ask the member to sign a written declaration to this effect.

What if circumstances change and I end up returning to gainful employment?

Take the example of Dora who is 58 years old and has decided to retire. Dora has reached her preservation age and provides the trustee with a declaration that she intends not to work again for 10 hours or more per week. The trustee is satisfied that Dora meets a condition of release, and Dora’s benefits accrued to this point become unrestricted, non-preserved. Dora commences an account-based pension with her super balance.

Within 12 months, Dora’s personal circumstances change unexpectedly and Dora decides she needs to return to regular work. Does Dora’s account-based pension become preserved again?

No. Once the condition of release is met, any unrestricted, non-preserved amount continues to be accessible. However, any new contributions and super benefits accrued since Dora met the condition of release will be preserved until a new condition of release (such as turning 65) has been met.

Does ‘ceasing an arrangement’ include changing the nature of employment?

Employment arrangements can and do change. This can be especially so as a person begins their transition towards full retirement. Examples might include:

  • taking a promotion
  • changing from full-time to part-time
  • switching from being an employee to a contractor
  • taking an extended period of unpaid leave

For the purpose of accessing super early, could a change to an employment arrangement – such as one from the list above – constitute a cessation of that arrangement?

The answer is important for a person wishing to access their super before age 65, because their eligibility to do so turns upon it.

Unfortunately, there are no black and white answers to this. However, as a general principle, if you continue to provide services to a company or employer, and this involves working for gain or reward, it is very unlikely that you will have ceased an employment arrangement. If you cannot show that you have ceased an employment arrangement, you will not meet a condition of release.

What if I have two jobs, and I resign from one but continue in the other?

You may still meet a condition of release, depending on your age and how many hours each week you work in your second job.

If you’ve turned 60, and you end one of your employment arrangements, then you meet a condition of release.

If you’re between preservation age and 60, then you have an additional hurdle to jump before you’re eligible to access your super. In addition to ceasing an employment arrangement, the trustee must be satisfied that you intend never again to become gainfully employed for 10 hours or more each week. If the job in which you continue exceeds 10 hours each week, you will not meet a condition of release.

Super is a long-term investment for your future, which is why there are rules around when you can access it. Ideally, you want your super to support your lifestyle right though retirement, which could be for twenty years or more. For some people, though, accessing super prior to turning 65 might be the right option. If you’re contemplating dipping into your super early, be sure you understand the ins and outs as part of your retirement planning.

General disclaimer

This content is intended only to provide a summary and general overview of the subject matter covered. It is not intended to be comprehensive nor does it constitute advice. We attempt to ensure that the content is accurate and current but we do not warrant the content nor its currency. You should seek professional advice before acting or relying on any of the content.

How can we help?
If you’d like to know more, please call us on 1300 623 936 to arrange a time to meet and we can discuss your particular requirements in more detail.

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