ACCESS TO SUPERANNUATION BENEFITS

2015/16 see’s the commencement of the phased increase in the superannuation preservation age for those born on or after 1 July 1960.

It not only impacts the ability to access preserved superannuation benefits, but also has implications for the taxation of superannuation benefit payments and employment termination payments.  As well as spouse contribution splitting, pensions, transition to retirement pensions and full release of benefits under severe financial hardship (amounts of up to $10,000.00 will still be available to those who satisfy financial hardship which means they must have been receiving income support payments from Centrelink for at least 6 months continuously)..

Effective from 1 July 2015, preservation age will progressively increase from age 55 to age 60 as shown in the table below.

Once an individual reaches their preservation age and retires, they are able to access their superannuation benefits without restriction.

Generally, an individual will be considered ‘retired’ under superannuation law if one of the following tests applies:

1.      If the individual has reached preservation age, retirement occurs if they have ceased an employment arrangement and the trustee of their superannuation fund is satisfied they never intend to be gainfully employed for 10 hours or more each week

2.      If the individual is aged 60 or more, retirement occurs if they have ceased an employment arrangement on or after reaching age 60.

The increase in preservation age means clients will not be able to access benefits until the published ages.

Taxation of superannuation benefits

The tax treatment of lump sum and income stream benefits paid from a taxed superannuation fund depends on the tax components of the benefit and the age of the individual at the time of payment.

Spouse contribution splitting

The increase in preservation age may be beneficial for some clients as it effectively extends the age below which contributions can be split to a retired or non-working spouse. If the spouse is working, contributions can continue to be split until the earlier of when the spouse reaches their preservation age and retires or reaches age 65.

Conclusion

The gradual increase in the superannuation preservation age, starting from 1 July this year, impacts more than just the age from which superannuation benefits can generally be accessed. Clients who turn 55 in 2015/16 will generally need to wait until 2016/17 when they reach 56 to not only access benefits but also to receive the more concessional tax treatment for superannuation benefit payments and employer termination payments. Those clients looking to split contributions with their spouses may be advantaged.

Liz Gibbs

SMSF Manager – OPTIMA PARTNERS