Let's deep dive into the definition of retirement

By Nadine Hill, Principal

11 December 2022

Australians today are working longer and retiring later, and the question of when to hang up the boots is, for many, a personal decision.

When you meet the definition of retirement it can impact your wealth when the next phase of life begins. 

Retirement is a condition of release that allows members who are of the “preservation age” and who wish to voluntarily tap into their superannuation before the age of 65 to gain access to their retirement savings without any restrictions. 

Your preservation age is the age you can access your super if you are retired (or start a transition to retirement income stream), and the rules seem very straightforward. 

If you were born before 1 July 1960, you have already reached your preservation age of 55 years. If you were born after 1 July 1960, your preservation age depends on when you were born. For instance, for those born after 1964, the preservation age is 60, and you can access your super once you have met a condition of release.

So why keep revisiting the concept of ‘retirement’ when we appear to have all these clearcut age brackets? After all, the idea of retirement has been around for many years. But like everything in modern life, from how we travel, communicate and work, the way we retire is also evolving. 

Since 1 July 2017, for example, retirement allows a member to start a retirement phase income stream within their Transfer Balance Cap (TBC) to be able to claim the pension exemption on earnings generated by its pension assets. 

Additionally, for members between the preservation age and age 65, satisfying the ‘retirement’ condition of release is the only way they can access in-specie lump sum superannuation (i.e., non-cash benefits). This allows super fund members to avoid the need and cost of selling and repurchasing assets in the market. 

The rules for working and contributing

Although retirement is associated chiefly with accessing a member’s superannuation benefits, it also impacts their ability to make superannuation contributions between 67 and 74. Only members in this age bracket, who satisfy the work test, can make voluntary super contributions.

The ATO will check to see if you meet the work test requirement at the time you lodge your income tax return as part of its standard assessment of your claims for various tax deductions.

For members under the age of 67, there is no need to meet a work test to contribute to super. Also, those super members who have access to unrestricted non-preserved benefits have the option of implementing a re-contribution strategy to help fund a financially secure retirement. Unrestricted non-preserved benefits don’t require a condition of release to be met and may be paid on demand by the member. These conditions might include, for example, benefits for which a member has previously satisfied a condition of release and decided to keep the money in the super fund.

Those who quit work under the age of 60 and have reached their preservation age can take advantage of a once-in-a-lifetime low-rate cap threshold. This means they can access up to $230,000 (2022/23) of the taxable component of their retirement savings as a lump sum, tax-free. 

For more information about the importance of meeting the retirement definition before accessing or making extra contributions to super, speak to the team at Brentnalls SA. 

Disclaimer

The information provided in this article does not constitute advice. The information is of a general nature only and does not take into account your individual situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.