Regular readers of this blog will be aware that retirement is a recurring theme amongst the topics we discuss.
While there are many philosophical ideas around what retirement is, and how the word means different things to different people, the word “retirement” also has a meaning that has been enshrined in the law – at least when it is applied to superannuation.
Superannuation benefits are generally “preserved”. That is, they cannot be accessed until a “condition of release” has been met.
While there are several different conditions of release including turning 65, becoming permanently disabled, being diagnosed as terminally ill, death, suffering severe financial hardship and others, today I want to focus on retirement.
Superannuation benefits may also be accessed when retirement occurs on or after reaching “preservation age”.
Preservation age, for people born before 1 July 1960, is 55. For those born after 30 June 1960, preservation age progressively increases, and for those born after 30 June 1964, preservation age is 60.
So, in the context of superannuation, what does retirement mean and what needs to occur for the retirement condition of release to be met?
The definition that is included in legislation[1] splits retirement into two categories with different definitions applying to each.
In the first instance, retirement is taken to have occurred when an arrangement under which a person is gainfully employed, or self-employed, ceases and the person has no intention of becoming gainfully employed again for more than 10 hours per week.
In simple terms, a person is treated as being retired if they have ceased to be gainfully employment and don’t intend to become employed again other than in a very limited capacity.
So, retirement has two elements:
- Ceasing gainful employment, or self-employment, and
- Having no intention of resuming gainful employment again.
Ceasing employment may occur at any age however superannuation benefits can only be accessed once preservation age has been attained. In other words, a person may have ceased gainfully employment at (say) age 50 however they cannot access their superannuation benefits until they reach their preservation age.
Having said that, the retirement condition of release is relaxed for those that cease to be gainfully employed between the ages of 60 and 65 (remembering that turning 65 is an automatic condition of release and benefits may be accessed from then, even if continuing to work).
When gainful employment ceases on or after turning 60, simply ceasing to be gainfully employed satisfies the retirement condition of release. A person is not restricted on becoming gainfully employed again in the future.
In fact, it is possible a person aged 60 to 65 may cease to be gainfully employed on Friday and be starting a new job with a new employer the following Monday, and they will have met the retirement condition of release. Their superannuation benefits that have accrued up until the date they cease employment become unpreserved. However, any new contributions, and subsequent investment earnings on the original benefit will continue to be preserved and a separate condition of release will need to be met for those benefits to be released.
For those ceasing to be gainfully employed from age 60 that have more than one job, ceasing employment from just one job is sufficient to meet the retirement condition of release.
For example, a person may be working for an employer in a full-time capacity and may have a part-time job on the side. Simply resigning from one of those jobs will be sufficient to meet the retirement condition of release for all superannuation benefits that have accrued up to that time.
Sadly, it may then be attractive for someone aged between 60 and 65 to “fabricate” their retirement to be able to access their superannuation benefits.
However, simply fabricating retirement by (say) ceasing employment with an employer and then resuming work with the same employer shortly thereafter or changing roles with the same employer – maybe changing from fulltime work to part-time work or relocating to a new location with the same employer – is unlikely to satisfy the retirement condition of release.
Unless the retirement condition of release has been genuinely met, any arrangement to access superannuation benefits early may fall within the realm of an illegal early release scheme. This can have adverse income tax consequences.
Accessing superannuation on the grounds of having met the retirement condition of release can open a range of opportunities to access lump sums or commence a tax-effective income stream or pension. However, the rules can be complex to navigate for those who have not yet turned 65. Therefore, appropriate financial advice should be sought to ensure you don’t fall foul of the myriad of rules that apply.
By Peter Kelly on 26 October 2022
