By Monica Rule

One way to access a lump sum superannuation benefit when you have reached your preservation age (i.e. 55 to 60) but you are still under the age of 65 is to retire from work.  You can access a non-commutable pension (e.g. transition to retirement income stream) when you have reached your preservation age (under 65) and still working, but in order to access a lump sum payout from your superannuation fund, you will need to retire from your gainful employment. 

What causes some confusion is under the superannuation law the definition of “retirement” is different for people who have reached their preservation age, but are under 60 years old, and people who have turned 60.

For a person who has reached their preservation age but is under 60, retirement occurs when their gainful employment has come to an end and they intend never to become gainfully employed again for 10 or more hours per week.  This means, if a person had a paying job which ended at some time in the past (a week ago or 3 years ago), the person could access their superannuation savings if they make a declaration that they do not intend to ever work again for 10 or more hours a week in a paying job. 

The cessation of their employment must be bona fide and there must not be any intention to resume work.  The person does not have to state that they “guarantee” they will never work again.  They simply need to state they intend not to work again for 10 or more hours per week at the time of making their declaration.  After ceasing employment, the person can resume another job for less than 10 hours per week.  Paid employment of less than 10 hours is not considered to be “employment” for superannuation purposes.

The retirement definition also does not preclude a person from later returning to fulltime work.  If an individual’s financial situation changes or they simply changed their mind at a later date and return to work, it does not mean they have breached their retirement agreement with the trustee of their superannuation fund.  As long as at the time of applying for their retirement benefit, they can satisfy that their gainful employment has ceased and their intention is never to be gainfully employed again, they have met the retirement condition.

For a person who has reached their preservation age and is 60 or over, retirement occurs when their gainful employment has come to an end.  Their intention about future employment is not important.  Therefore, if a person gives up employment with one employer but continues working for another employer, then they would be considered retired from one employment and would be able to access their superannuation savings accumulated up to that time.  Any money contributed to their superannuation fund after ceasing employment would need to meet a fresh condition of release (such as ceasing work with the other employer) to be accessed from the fund.  There is no requirement for the person to cease all gainful employment at the one time.

Retirement after the age of 60 is, therefore, when a person who has two or more jobs and ceases one of the jobs; or moves straight from one job to another job; or ceases work from one job and increases their work hours in another job.  All that is important is that an employment arrangement has come to an end and that this occurred after the person turned 60 years of age.   

If a person is aged 60 or over but under 65 and they ceased to be gainfully employed before their 60th birthday, then they still need to satisfy the trustee of their superannuation fund that they do not have any intention of resuming gainful employment again to access their superannuation.  

People who have never been in gainful employment, cannot access their superannuation under the “retirement” ground.  These people will need to wait until they either turn 65 or they meet other conditions of release (Refer to Bulletin 520).  This is because, if a person has never been gainfully employed, they cannot cease to be gainfully employed.  

Under the superannuation law, a person is considered to be “gainfully employed” if they are employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.  This requires a person to provide either their mental or physical labour and receive some tangible reward for their efforts.  The definition is broad enough to cover any activities undertaken by someone for which payment is received.  It includes engagement in religious callings and so on.  The amount of payment, the level of effort involved and whether it results in a profit or loss is immaterial.

However, an activity is not considered gainful employment where the only form of payment is an allowance or re-imbursement for incidental expenses.  This would occur in the case of voluntary work where a person may be reimbursed, in part or in full, for the cost of meals, travel and other incidental items.  It would also not include a person receiving a government allowance for looking after a disabled relative, or a relative who undertakes child minding on an ad hoc basis.  As an aside, prisoners who receive an allowance for making good when serving their time are also not gainfully employed for purposes of the definition. 

Once a person has met the “retirement” condition of release to access their superannuation savings, their superannuation will change its character from “preserved” to “unrestricted non-preserved”.  This means, they can withdraw it as a pension and/or a lump sum superannuation benefit depending on the types of benefits payable from their superannuation fund.  They could also do nothing and leave it in their fund.  If the individual changed their mind and returned to work at a later time, the money will remain unrestricted non-preserved.  Any new contributions and their investment earnings would be treated as preserved.

Anyone thinking of accessing their superannuation under the “retirement” ground needs to ensure they maintain appropriate documentation as proof that they have ceased gainful employment.  A person employed under an employment contract could provide a letter of termination or retirement from their employer.  A person who is self-employed could provide a statutory declaration stating that they have terminated their employment and do not intend to be gainfully employed again for 10 or more hours per week in the future.

Accessing superannuation without satisfying the requirements of the superannuation law could mean a person’s superannuation money is treated as “normal income” and taxed at their marginal tax rate by the Taxation Office.  The Tax Office may also impose penalties for accessing their super illegally.  

Monica Rule is a superannuation specialist and author of The Self Managed Super Handbook – Superannuation Law for SMSFs in plain English www.monicarule.com.au

For Gold and Platinum members, please read on for examples of retirement.

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. The statements and opinions are the expression of the author, not Law Central, and have not been checked for their accuracy, completeness or changes in the law. Law Central recommends you seek professional advice before taking any action based on the content of this Bulletin.

Related documents:

• Self Managed Superannuation Fund Deed
• SMSF - Update Rules
• Pension Pack for Self Managed Super
• SMSF Full Valuation

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