This may seem like a straight forward question but quite often it is far from it.
Whether a person’s situation meets the definition of retirement, in a superannuation context, is important for several reasons. Considerations include:
- Whether or not you can access your superannuation
- Whether there is a reporting obligation under event-based reporting (transfer balance account reporting or TBAR)
- Whether the earnings on your super are tax exempt.
Let’s focus on the basics. Retirement can be defined as: at a point in time, a person has ceased working for gain or reward and does not intend to work again in future.
This situation is relevant for all ages, however, there are different twists depending on age.
Under preservation age
Generally, a person cannot access their superannuation until they have at least reached their preservation age.
|Date of Birth
||Financial year preservation age reached
|Before 1 July 1960
|2014-15 or earlier
|01/07/1960 to 30/06/1961
|01/07/1961 to 30/06/1962
|01/07/1962 to 30/06/1963
|01/07/1963 to 30/06/1964
|On or after 01/07/1964
|2024-25 or later
It may be possible for a 45-year-old today to “retire”, however they will generally not be able to start an income stream or withdraw a lump sum until they have had their 60th birthday.
I’m under 60, and I’ve reached my preservation age and still working
A person who has reached their preservation age but has not retired may be able to access their super in the form of a non-commutable income stream. These are more commonly known as a Transition to Retirement Income Stream or TRIS. Non-commutable refers to the limit placed on how much can be withdrawn on an annual basis (maximum of 10% of the balance). A TRIS does not permit lump sum withdrawals and the earnings on this balance are treated the same as an accumulation balance – 100% taxable.
I’m under 60, reached my preservation age and I’ve ceased gainful employment
The trustee of the superannuation fund must be reasonably satisfied that you never intend to be gainfully employed again on either a full-time or part time basis. If this is the case a person who has reached their preservation age and has retired is able to commence an Account Based Pension. This type of income stream does permit lump sum withdrawals and the earnings associated with this balance are exempt from tax.
I am over 60 but under 65
A person who ceases a gainful employment arrangement after their 60th birthday will generally satisfy the retirement condition of release without the need to permanently retire. This is because the definition of retirement for people over 60 is met if this occurs; for example, if a 62-year-old resigned from one employer and then commenced working for another employer. Alternatively, if a person was gainfully employed by more than 1 employer, by ceasing one of those employment arrangements, that person may be able to access their superannuation benefits that have accrued up to that point in time. Any further superannuation contributions taking place after this time will be preserved until another retirement event takes place.
I am aged 65 and over
Reaching age 65 is different again. In this instance, it is usually not necessary to cease any employment arrangement in order to have full access to superannuation benefits in the form of either an account-based pension or as a lump sum.
Frequently asked questions
How do I notify the fund?
According to Regulation 6.01(7) of the Superannuation (Industry) Supervision (SIS) Regulations, the trustee must be reasonably satisfied that the member intends never again to become gainfully employed either on a full-time or part-time basis (i.e. for 10 or more hours per week). It will depend on the governing rules of the fund, but generally this may take the form of a declaration of retirement or simply a letter from the member to the Trustee advising of their retirement. In some cases, the Trustee may require a statement from the employer confirming that the employment arrangement has ceased.
If I retire, can I go back to work?
So long as your intention at the time you ceased gainful employment was to cease work indefinitely, there is nothing to prevent a person returning to work should an opportunity present itself down the track. It is important to note that recommencing employment does not change the status of your superannuation benefits. In other words, if a condition of release was satisfied to make your superannuation “unrestricted non-preserved” then this will continue. Any new superannuation monies will generally be preserved (depending on your age).
What does gainful employment mean?
Gainful employment is defined in Regulation 1.03 of the SIS Regulations to be “employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.”
Generally, this is income from personal exertion and could include wages, director’s fees or business income (e.g. as a sole trader or partnership). Passive income such as distributions from trusts, dividends from a company or rental income from property are unlikely to satisfy this definition. Volunteer work does not meet the definition either as there is no payment for services provided.
What if I reduce my hours with my current employer to less than 10 hours per week?
The answer to this question will depend on the age of the person and their employment history. For a person who has reached their preservation age and has only ever had one employer, they do not meet the first requirement of ceasing a gainful employment arrangement. Alternatively, if they have changed jobs many times during their working life, this requirement will be met. The timing of the employment arrangement ceasing is not important for this situation.
What if someone has never worked at all?
The key requirement to meeting a retirement condition of release is that a person ceases a gainful employment arrangement. In this situation, they will most likely have to reach age 65 before being able to access their super benefits.
What if I am a director working in my own business?
The Australian Tax Office (ATO) provides us with some guidance in this area in their case study of Charlie Crackle. Charlie (57) was employed by the Crackle Discretionary Trust and received a wage from the business. He ceased his employment arrangement but continued to have a level of involvement in the day to day running of the business. He continued to receive income from the business in the form of trust distributions. The ATO formed the opinion that they could not be certain that a gainful employment arrangement had ceased.
When a retirement event has occurred, the member must notify the Trustee as soon as practicable. The notification is vital, particularly if a person is under the age of 65 and receiving a TRIS, if they wish to withdraw a lump sum or begin an income stream for the first time.
Please speak to your Bentleys Advisor today if you have any questions about retirement.
APRA Prudential Practice Guide (SPG) 280 – Payment standards (June 2017)
Australian Taxation Office, Establishing whether gainful employment has ceased.
This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Bentleys (Australia) Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based on their own personal circumstances. Although we consider the sources for this material reliable, no warranty is given and no liability is accepted for any statement or opinion or for any error or omission.