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Self Managed Super Fund (SMSF) Article
Access to Super At Age 65

By Tony Negline.

This article may be out of date.

27th April 2004

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The recent Productivity Commission report into the economic implications on the aging of the population makes very sobering reading.

The report says that economic growth will slow over the next 40 years because of the aging population which could cause deep deficits in government budgets over many years.

To counter these problems the government will need to be proactive and quickly introduce measures to ensure that economic growth rates don’t decline.

The Productivity Commission was not asked to come up with possible policy solutions.  However the report’s conclusions have led various commentators to predict that the government will further restrict access to entitlements such as the aged pension.

Under current government policy age sixty-five is considered to be the retirement age for most people.  But where did this age come from?

According to Lester Wills, a financial services consultant who is about to complete his PhD on the financial preparation for retirement, Otto van Bismarck, in 1889, first proposed age 70.

“Bismarck believed that those disabled from work by age or invalidity have a well-grounded claim to care from the state,” said Wills.  “He selected age 70 because at the time the average life expectancy was only 45 so very few were expected to qualify for the payment.  Thirty years after the Prussian empire introduced this policy, it reduced the age to sixty-five.”  The rest of the world simply followed the Prussian’s lead without too much research and for some reason the age has never been increased to any great extent in any country.

If we applied the same Prussian logic we would not be paying the aged pension until older Australians were in their nineties!

Peter Costello has said he has no plans of increasing the minimum age for the aged pension.  He has said that one of his first priorities in this area is to get more people aged between fifty-five and sixty-five to stay in the workforce because right now only a small number of people actually do this.

Regardless of the Treasurer’s protestations, it should not surprise anyone if, in the next five years, the government increased, fazed in over say twenty or thirty years, the minimum ages at which people can access the aged pension and their super benefits thereby forcing older Australians to remain in the workforce longer.

If the increases did occur the government would have to alter the work test to stop investors accessing their super benefits after reaching fifty-five years of age as lump sums or pensions which can be converted into a lump sum.  The government would also need to change the rules which almost force a superannuant to take their benefits, as a pension or lump sum, once they reach age 65.

Superannuation investors aged between fifty-five and sixty-five are not forced to touch their super until they reach sixty-five but are allowed access if they can prove that they have retired.

People aged sixty-five must take their super benefits if they can’t prove to a trustee that they didn’t work in the previous financial year.

More specifically the rule says that a person aged at least sixty-five but under seventy-five must be gainfully employed on a “part-time equivalent level”.  This means that a person must be gainfully employed for at least 240 hours during the previous financial year.  You are gainfully employed if you’re employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

The 240 hours can be done as flexibly as an investor wishes.  It could be satisfied by doing 4.7 hours work per week over 52 weeks or it could be 40 hours work per week over six consecutive weeks (and no work for the other 46 weeks in a year).  The key is that if a person turns 65 this financial year then in order to keep their super assets in the super system, the person must be able to prove they met the work test during the 2004 financial year.

At the start of each financial year a trustee has to actively test the employment status of their accumulating member’s aged at least 65 but under 75.  People who do not provide the necessary proof will find their benefits compulsorily paid out because, without appropriate evidence, a trustee must assume a person doesn’t satisfy the work test and their benefits must be paid out.

A person running his or her own fund must make sure a similar process is followed.

Of course once a person reaches age sixty-five they can do whatever they like with their super assets even if they continue to work full-time.

People who turn seventy-five after June 2004 must actually take their super benefits even if they continue to work full-time.  People who were already seventy-five before July 2004 can keep their assets in super if they continue to be gainfully employed for at least 30 hours each week.

Any change that the government makes in this area will have to cater for its pathological insistence that superannuation not be a tax-efficient way of transferring wealth from one generation to the next.

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