Most people believe that they can only access their superannuation when they retire and stop working, but there are many other circumstances that could trigger an all-important 'condition of release' and make retirement funds available.
This guide focusses on SMSF trustees but I will address accessing retirement savings generally. You can find out more about conditions of release here. Acknowledgement: I have relied on the excellent guidance of the AMP TapIn technical team for much of the content in this article.
What is the retirement 'condition of release'?
Since 1 July 2017, the tax exemption on investment earnings supporting a Transition to Retirement Income Stream (TRIS) - Accumulation Phase is no longer available. However, a TRIS regain its tax-exempt status once the retirement condition of release is satisfied and it becomes a Transition to Retirement Income Stream - Retirement Phase.
Therefore, understanding what constitutes ‘retirement’ for an SMSF or other super member in a TRIS is critical to achieve the holy grail of a tax-free retirement pension.
Conditions of release overview
Death is the only condition of release that requires compulsory cashing of benefits. There is no requirement under any other condition of release to either cash out a benefit or commence an income stream from your SMSF and member accounts can remain in accumulation phase indefinitely.
A member account in accumulation phase is subject to an income tax rate of up to 15% instead of a 0% tax rate for investments backing a pension income stream. There is also now a $1.7 million limit on how much can be transferred into an income stream with people who already had some money in pension phase having as pro-rata limit of between $1.6 million and $1.7 million.
Check on my.gov.au> ATO service> Super Tab> Information to see your limit.
The most common condition of release to access your account is reaching preservation age and retiring.
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Date of birth
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Preservation age
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Preservation year
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Before 1 July 1960
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55
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2014-15 (and prior)
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1 July 1960–30 June 1961
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56
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2016–17
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1 July 1961–30 June 1962
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57
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2018–19
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1 July 1962–30 June 1963
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58
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2020–21
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1 July 1963–30 June 1964
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59
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2023–24
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SMSF members who are under 65 and have reached preservation age but remain gainfully employed on a full-time or part-time basis may access their benefits as a non-commutable income stream called a TRIS – Accumulation Phase. However, that income stream will not be tax exempt until you meet a further retirement condition of release on reaching the age of 65, when a member may access their benefits any time without restrictions.
If a person has never been gainfully employed in their life, they cannot use the retirement condition of release to access their preserved benefits. Such a person would need to satisfy another condition of release to access their benefits (eg reaching age 65, invalidity, terminal illness, severe financial hardship).
Preservation age but under age 60
Where a member has reached a preservation age that is less than 60, their retirement occurs when:
- An arrangement under which the person was gainfully employed has come to an end, and
- The trustee is reasonably satisfied that the person intends never to again become gainfully employed on either a full-time or part-time basis (i.e. for 10 or more hours per week).
To evidence retirement, the SMSF trustee should request a declaration from the member that they have ceased work and they have no intention of being gainfully employed for more than 10 hours a week ever again.
Age 60 but less than 65
When a person has reached age 60, retirement occurs when an arrangement under which the person was gainfully employed has ceased on or after the person reached age 60. It does not matter that the person intends to return to the workforce. This condition presents an opportunity for many people to move a taxed pension to tax-exempt phase earlier.
Example: Reaching age 60
Michelle has worked as a nurse for many years. She resigns from this employment on her 61st birthday. Three months later, Michelle takes up a three-day a week position as a grief counsellor. Because Michelle has ceased employment as a nurse after her 60th birthday, she can access all her superannuation accumulated up until that point.
Situations sometimes arise where a person, aged 60 or over, is in two or more employment arrangements at the same time. According to APRA Prudential Practice Guide SPG 280, the cessation of one of the employment arrangements is the condition of release in respect of all preserved benefits accumulated up until that time.
However, the occurrence of the ‘retirement’ condition of release in these circumstances will not enable the cashing of any benefits which accrue after the condition of release has occurred. A person will not be able to cash those benefits until another condition of release occurs (e.g., she also leaves her second employer).
Example: Two employment arrangements
Frank is 63 and works part-time as a school janitor. During the school holidays, he had a short-term six-week contract to work as a census form collector. The contract finished in September 2021.
Because Frank has ceased one of his employment arrangements, he can access all his superannuation up until that point. However, any later contributions made (employer and personal contributions) and earnings will be preserved.
Director and employee of own company
Sometimes a person is both an employee and director of their own company. They may wish to cease their employment duties with the company but retain their directorship. The question arises as to whether such a person (age 60 – 64) can access their preserved superannuation benefits.
If a person is engaged in more than one arrangement of employment, the person can cease any arrangement of employment to meet the ‘age 60’ definition of retirement.
Therefore, as long as a person’s two roles are separate and they terminate in their capacity as an employee of the company, then even though they are still employed in the capacity as director, that person can access their preserved superannuation entitlements.
Note that there must be a distinct termination, i.e., cessation of all duties as an employee, and the person should now only operate in the capacity as a director for the company.
We see this a lot where a spouse had helped out for years but as the children join the business or the business matures, the requirement for the spouse to continue turning up day-to-day reduces. They can step away from the duties as an employee, but they may still handle the liaison with the tax agent on the financials and the ATO to pay tax instalments, which are more akin to director's duties.
When is a person gainfully employed?
Someone is gainfully employed for superannuation purposes where they are employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation, or employment.
Gainful employment can either be on a part-time (at least 10 hours per week and less than 30 hours per week) or full-time basis (at least 30 hours per week).
The definition of gainful employment involves two clear components:
- Employment or self-employment, and
- Gain or reward.
The term employee is not specifically defined in the SIS Act for this purpose so its common law meaning must be considered. One definition of employee is:
‘a person in a service of another under any contract of hire (whether the contract was expressed or implied, oral or written), where the employer has the power or right to control and direct the employee in the material details of how the work is to be performed.’
In contrast, self-employed people work for themselves running their own business (e.g., have a business plan, financial records, an ABN, a regular and frequent level of activity in the business, advertising, etc).
The superannuation legislation provides no guidance as to what ‘running a business’ is. However, taxation law does. In particular, paragraph 13 of Tax ruling 97/11 outlines relevant indicators.
Gain or reward is not defined in the superannuation legislation and therefore takes its ordinary meaning. The Macquarie Dictionary defines gain as ‘to get an increase, addition or profit’. Reward is defined as ‘something given or received in return for service, merit, hardship, etc’.
In the context of satisfying the gainful employment definition, it follows that the service, merit, or hardship must be completed with some expectation of an increase, addition, or profit. There must be a direct link (or nexus) between the activity undertaken and the reward provided for the activity. The actual level or amount of gain or reward does not necessarily have to be commensurate with the level of effort or activity undertaken. The reward doesn’t necessarily have to be received as cash, but could be received as services, fringe benefits, or other valuable consideration.
The gain or reward element is typically difficult to satisfy in the case of charity or volunteer work. Non-paid work for a charity, for example, would clearly not qualify as gainful employment. Mere reimbursement of expenses would not seem to constitute gain or reward.
Transition to retirement pensions
A Transition to Retirement Income Stream condition of release allows a member to access their superannuation as a non-commutable income stream once they have reached preservation age, subject to a maximum annual draw down of 10% per annum. Preserved benefits cannot be accessed through a TRIS as a lump sum until it meets the new 'pension phase' position. It’s a fairly simple process to confirm to your pension provider that you have met that further condition of release and they may automatically move you to Transition to Retirement Income Stream - Retirement Phase at 65, but it’s worth confirming with them in writing.
SMSF trustees should immediately contact their fund accountant or administrator should the member retire permanently from the workforce or terminate employment on or after age 60. When the administrator is notified that a no cashing restriction condition of release occurs (e.g., retirement), the balance of the TRIS account (at that stage) will be converted to a retirement phase account-based pension (ABP), and the tax exemption on earnings will apply. However, it will then also count towards the individual’s transfer balance cap and needs to be reported to the ATO within the new reporting guidelines.
Reaching age 65 will automatically result in a TRIS pension becoming a Transition to Retirement Income Stream - Retirement Phase and obtaining tax exemption on earnings, if within the individual’s $1.6-$1.7 million pension transfer balance cap.
Evidencing cessation of gainful employment
Genuine terminations of employment will typically involve the payment of accrued benefits, such as annual and long service leave. SMSF trustees should retain written evidence of the member’s cessation of gainful employment on file and copy to the administrator, so the fund auditor has access.
Penalties apply to members, trustees and those who promote ‘illegal early access schemes’ to improperly access superannuation prior to meeting a condition of release.
Liam Shorte is a specialist SMSF adviser and Director of Verante Financial Planning. He is also a Director of the SMSF Association, and he writes under the social media identity of 'The SMSF Coach'.
This article contains general information only and does not address the circumstances of any individual. It is based on an understanding of relevant legislation and rules at the time of writing, which may change.