Author Alan Maddick 27th April 2022
At the heart of the super system (Including Self Managed Super) is the requirement to preserve super for retirement; here is a summary of how the preservation system works.
Savings from compulsory and voluntary contributions to superannuation are important elements of …Australia’s retirement income system.[1] So it makes sense that there are robust rules to preserve savings in the super system once contributed till they can serve their purpose of providing retirement income.
The basis for supervision [Under the SIS Act] is that those funds and trusts are subject to regulation under the Commonwealth’s powers with respect to corporations or pensions (for example, because the trustee is a corporation). In return, the supervised funds and trusts may become eligible for concessional taxation treatment.[2] in return for this concessional tax treatment a contribution into super is preserved primarily for retirement but subject to various conditions super contributions can also be used for some other uses. The default position is that all contributions made, or benefits rolled over or transferred[3] are preserved benefits and cannot be released from the superannuation system.[4] Anyone involved in illegal early release of super can be subject to large fines or even jail.[5]
Conditions of Release
Retirement is the first condition of release in the SIS regulations[6] and is tied to the main objective of the Superannuation system; the provisions of pensions[7] the term Retirement is defined in regulation 6.01
“the retirement of a person is taken to occur:
(a) in the case of a person who has reached a preservation age that is less than 60–if:
(i) an arrangement under which the member was gainfully employed has come to an end; and
(ii) the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either on a full-time or a part-time basis; or
(b) in the case of a person who has attained the age of 60–an arrangement under which the member was gainfully employed has come to an end, and either of the following circumstances apply:
(i) the person attained that age on or before the ending of the employment; or
(ii) the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either on a full-time or a part-time basis.”[8]
Employed on a full time or part time basis is defined in regulation 6.01,[9] regulation 7.01 defines gainfully employed on a part time basis at (3) and gainfully employed is defined in reg 1.03.
Once retired super members are able to draw a pension from their fund[10] the pension payments from super and not taxed as long as the pension payments meet the requirements as set out in the Act and Regulations, including making minimum pension payments.[11] As well as the pension payments not being taxed in the hands of the member earnings from the underlying assets used to generate the pension are also not taxed within the fund.
Once members turn 65 members can also withdraw lump sums with no restriction.[12] As the earnings of assets inside super are not taxed once you retire and start paying a pension (as discussed above) there is an incentive to retain your super savings inside the super environment and use them to generate income in retirement; again encouraging preservation of super even in retirement.
There are a range of other ways to get access to preserved super that are not part of the core provision of retirement benefits the system is set up to provide, for example:
Terminal Medical Condition; If a member is diagnosed with a terminal medical condition and have 2 years or less to live (need to be certified by two doctors including one specialist relevant to the illness)[13]
Temporary Resident; temporary residents can get their super benefits released when they leave Australia with no visa to return.[14]
Severe Financial Hardship; [15]
Medical Condition of the member or Dependant; subject to a range of conditions members can withdraw super to pay for a life threatening medical procedure.[16]
Death – Members benefits can be paid on death to the Estate of the deceased or to nominated beneficiary(ies), there are no cashing restrictions on death[17]
Covid Related; members were able to withdraw $10,000 in the 2020 and/or 2021 financial year if they were financially impacted by the Covid pandemic. [18][19]
If you are looking at starting a Self Managed Super Fund or perhaps wrestling with the rules please get in contact with our Self Managed Super Accountants here. We would love to discuss your situation.
[1] Superannuation (Objective) Bill 2016 Explanatory Memorandum
[2] Superannuation Industry (Supervision) Act 1993 Cth s 3(2)
[3] SISR 6.15 (1)
[4] IBID
[5] Superannuation Industry (Supervision) Act 1993 Cth s 9A
[6] SISR Sch 1 part 1 item 101
[7] Superannuation Industry (Supervision) Act 1993 Cth s 3(2) see also Superannuation (Objective) Bill 2016 Explanatory Memorandum
[8] SISR 6.01 (7)
[9] SISR 6.01
[10] SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 – Sch 1, item 101
[11] SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 – Sch 7
[12] Ibid item 106
[13] SISR 6.01A
[14] SISR 6.01B
[15] SISR 6.01(5)(a)-(b)
[16] SISR 6.19A 1(a), 3
[17] SISR 6.17A
[18] SISR 6.17D
[19] SISR Sch 1 Item 108