What is preservation age and how is it relevant to retirement planning? What happens to your super once you reach preservation age?
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- What is preservation age and how is it relevant to retirement planning? What happens to your super once you reach preservation age?
- What Is Preservation Age?
- Understanding Preservation Rules
- Accessing Your Super Once You Reach Preservation Age
- How to Access Your Super Before Preservation Age
This article will discuss essential details about preservation age, including how it differs from qualifying age, and what the rules are relating to preservation age.
The discussion includes topics on starting a pension or super income stream and retiring upon reaching preservation age. A summary of accessing and using your super before or upon reaching preservation age is also provided.
What Is Preservation Age?
Preservation age is the earliest age at which you can access and withdraw your super. Since super is the accumulated fund “preserved” for your future benefit, the age you become eligible to access the fund is called preservation age.
Preservation Age vs. Qualifying Age: How Are They Different?
Qualifying age is the earliest you are eligible for age pension through the Australian government’s Age Pension program.
Preservation age is lower than qualifying age despite both being based on your date of birth.
If you were born in 1957, you might access your super fund at age 55. However, you may not yet be eligible to receive pension payments until 65.5, rising to 67 by 2023.
Should You Retire When You Reach Preservation Age?
Financial decisions do not have to involve retirement. Suppose your goal is to keep building up your retirement savings. In that case, you can keep working and continue paying super contributions until you decide it is time to access your fund.
Understanding Preservation Rules
Your super fund may have preserved, restricted non-preserved, or unrestricted non-preserved benefits.
Preserved benefits contain all contributions and earnings accumulated after June 30, 1999.
Restricted non-preserved benefits consist of all contributions from July 1, 1983 to June 30, 1999.
Unrestricted non-preserved benefits include funds that you can access anytime, provided your super provider allows it.
Preservation Rules at Different Ages
Under Commonwealth provisions, you are required to preserve part of your superannuation until you are either no longer employed from age 60, or permanently retired upon reaching preservation age.
You must meet either of those conditions before accessing your super fund.
Accessing Your Super Once You Reach Preservation Age
You gain eligibility to access your superannuation once you reach your preservation age and meet the fund’s condition of release. Some standard withdrawal options include starting a TTR (transition-to-retirement) income or retirement from the workforce.
Starting a TTR Income Stream or Pension
Once you reach preservation age, the TTR option allows you limited access to your super while still working full-time, part-time, or casually.
Leaving the Workforce
Once you meet the retirement conditions, you can receive superannuation funds without restrictions. The following conditions are:
- You’re reaching preservation age and retiring before 60
- You’re retiring from employment after 60
- You’re reaching 65 (whether you’re still working or not)
What Is the Best Way to Access Your Super?
Your needs and personal circumstances will determine the best option for you. You may choose to either access super as a retirement income stream and receive regular payments or convert it into a lump sum payment.
Once the fund is depleted, either through lump sum or monthly payments, payouts will no longer continue.
When Can You Get Your Super?
Your date of birth determines your preservation age, and your preservation age determines when you can access your super.
|If you were born
|Your preservation age is
|Before 1 July 1960
|1 July 1960-30 Jun 1961
|1 July 1961-30 Jun 1962
|1 July 1962-30 Jun 1963
|1 July 1963-30 Jun 1964
|from 1 July 1964 onward
If you’re not permanently retired and have reached preservation age, you can claim your super through the TTR option.
Meanwhile, regardless of the date of birth, eligibility for a defined benefit pension starts from age 55. Each fund has different requirements, so consult with your fund manager first.
How to Access Your Super Before Preservation Age
Under special circumstances, you may access your super before you reach preservation age. Some of these situations include temporary or permanent incapacitation, severe financial hardship, compassionate grounds, or a terminal medical condition.
Getting Super Early
You can gain access to your superannuation early when going through specific life events, including:
- Difficulty performing work due to a medical condition
- Difficulty meeting living expenses and relying on Commonwealth benefits for 26 weeks
- Receiving payment assistance for medical treatment, home or vehicle renovation to address a severe disability, funeral expenses, or home loan repayment
- Suffering from terminal illness or injury
Other special circumstances include:
- Severe medical condition due to COVID-19 (novel coronavirus)
- Super below $200
- Being a temporary resident in Australia
Tax rates vary depending on your circumstances. Lump sum withdrawal due to financial hardship is taxable, while lump sum for terminal medical conditions is a tax-free component.
Do your research and determine the taxable components of your super account. Be mindful of tax implications, tax offsets, and tax returns.
More importantly, seek professional advice from a financial adviser or counsellor before getting early access. Discuss your financial situation and receive financial advice on investment options and application instructions.
For more information on early access, visit the Australian Taxation Office (ATO) website.
The fund’s transfer balance cap is set at $1.6 million starting from the financial years of 2017 until 2021. It is indexed based on the consumer price index (CPI) and rounded down to the nearest $100,000.
Defined Benefit Income Cap
The defined benefit income is capped at $100,000 starting from the financial years of 2017 until 2021. Based on the indexed transfer balance cap, the cap may increase or decrease over time.
Upon withdrawal of your super funds, you can either receive payment as a lump sum, or set up a retirement pension account for drawing regular income.
Beware of Illegal Super Schemes
Watch out for individuals claiming to help you gain early access to your super. Some will offer questionable financial services, such as transferring your funds to a privately managed fund. These schemes are likely a scam, and you can suffer a penalty if you join them.
Accessing and Receiving Your Super
Reading through your super’s disclaimers, relevant product disclosure statement (PDS), and conditions of release is necessary before making decisions related to your super.
You can access and receive your super benefits through Centrelink payments and services. Visit the Services Australia website or phone Centrelink at 13 23 00 for more information.
Request a call from our experts to know more about preservation age and accessing your super.
The more we do to maximise and grow your super today, the more financial freedom you’ll have in years to come find out how a financial planner or adviser can help you with this and moreTrack your Super
- Preservation Age. https://www.google.com/url?q=https://moneysmart.gov.au/glossary/preservation-age&sa=D&source=editors&ust=1625804283249000&usg=AOvVaw0eEr2_g-HGGAsszJAtJvPk
- When you can access your super. https://www.ato.gov.au/individuals/super/in-detail/withdrawing-and-using-your-super/withdrawing-your-super-and-paying-tax/?page=2
- Age Pension. https://www.google.com/url?q=https://www.alrc.gov.au/publication/grey-areas-age-barriers-to-work-in-commonwealth-laws-ip-41/age-pension/&sa=D&source=editors&ust=1625804984571000&usg=AOvVaw0MN9LJGi_VPurKEJqeiUkD
- Preservation Rules. https://www.google.com/url?q=https://www.statesuper.nsw.gov.au/sss/benefits/preservation-rules&sa=D&source=editors&ust=1625804283245000&usg=AOvVaw3WE5a8nhNA6P5fEKvobDKC
- Getting your super. https://www.google.com/url?q=https://moneysmart.gov.au/how-super-works/getting-your-super&sa=D&source=editors&ust=1625804283249000&usg=AOvVaw1_uWB0vTR2BVImGTrwyue8
- Preservation age. https://www.google.com/url?q=https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?page%3D9&sa=D&source=editors&ust=1625804283253000&usg=AOvVaw3tAcFQdCCGgKAbjrfkWkEY