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Self Managed Super Fund (SMSF) Article
Don't work if you want access to your super

By Tony Negline.

This article may be out of date.

15th July 2009

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Very few retirees stop all forms of work when they finish paid employment.

Working is not only about receiving wages and just because a person has ceased formal paid employment does not mean that person is idle.  Many older Australians provide a wide range of voluntary services such as delivering meals on wheels, cleaning the local church or minding grandchildren so the younger generation can take a breather or go to paid work.

An increasing number of older Australians are now retiring from the paid workforce slowly.  That is, they might stop full-time employment and work two to four days a week for a few years before finally stopping all paid work.

In effect retirement is a flexible concept but unfortunately the rules that allow older Australians access to their retirement savings are not very flexible.

The principal purpose of super funds is to provide members with ‘retirement’ benefits and a fund must not allow a retiree to take money out of the super system until a member satisfies all the various definitions of retirement.

The vast majority of people who stop work before age 65 cannot survive financially without accessing some or all of their super monies.  The government allows people aged at least 55 but under 65 to access their super monies as a pension whilst continuing to work.  The maximum amount of income that can be paid from these pensions is 10% of the account balance each 1 July (worked out using the market value of the underlying assets).

Full access – including as a lump sum – to super assets before age 65 does not happen automatically.  It depends upon your age when you first want to get access to your benefits and how you want to take those benefits.

If you were born before 1 July 1960 and you stop work before you turn 60 and you want access to all your super as a lump sum after turning age 55 and before turning 65, then you must be able to satisfy your super fund’s trustee that you stopped gainful employment (that is, employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment) and you never again intend to be gainfully employed for more than 10 hours each week.

Does making such a strong declaration preclude you from ever working again?  Strictly no.  However some people make this declaration and then the next day, week, month or few months return to their former job without any change.

In some circumstances people quickly realise they retired too soon and return to what they were doing.  For others it takes them awhile to decide that work wasn’t too bad after all and then decide to return to the fray.  In the majority of cases however people are making the “never working again” declaration whilst having a strong preference of returning to work.  Their principal motivation is to have flexibility and not be bound by what they think is bureaucratic nonsense.

The trustees of many large super funds will not permit access under this rule until the member has personally signed a written declaration stating that they satisfy the access rule.  Some funds even demand copies of appropriate documentary proof.  Anyone running their own super fund should have a similar documentary trail to show that all necessary rules have been followed.  Breaching the preservation rules is often considered a serious offence so it would be foolish to risk penalties just because organising the documentary trail seems like too much of a bother.

The access rules change once a person turns age 60 (but is under 65) and is still working.  Super fund members must be able to demonstrate that an “arrangement under which the member was gainfully employed has come to an end” and either the person was at least 60 before they stopped work or they can satisfy their super fund trustee that they don’t intend to work again.

If a person who is older than 60 has more than one job they simply need to stop one of those jobs to access their super assets.  As a result it’s common to hear of people getting small part-time jobs which are terminated after a short period of time.  Whether such arrangements are legitimate is always a difficult issue.

Documentary proof is often needed to show that a job has been terminated.  This rule remains in place until a person turns 65.

Once a person reaches age 65 they can take their money out of super even if they continue to work full time.

It is important to note that investors no longer have to do anything with the super assets and those savings can continue accumulating away even if the investor isn’t working.  A small number of high net worth investors live off their non-super savings and these people find the lower tax rates in the super environment an attractive place to keep building their retirement monies.  How long will a seemingly insatiably envious government allow this to continue?

Clearly all these rules need to be approached with caution.  Time should be spent considering all the options before deciding on a course of action because a choice selected in haste to gain an immediate advantage can have unwelcome ramifications in later years.

The Henry tax review has suggested super investors should not be allowed to gain access to their super until the age pension age.  The government is yet to formally accept this recommendation.  According to Alex Dunnin of Rainmaker Information, rumours are beginning to circulate that the “Henry Review is hardening its position against extensive super concessions and is likely to recommend significant restructuring”.

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