Preservation rules for Superannuation

Q: I am 56 years old and recently made redundant. I was reviewing my Superannuation account and it breaks my balance down into preserved and non-preserved benefits. What is the difference? Can I access the non-preserved portion and what are the tax consequences.

A: As you are unemployed, you are allowed to access to up to $10,000 of your Superannuation savings in both this financial year and the next up to 24 September 2020. The lump sum withdrawals are tax free.

This additional access to Superannuation is a temporary measure as a result of coronavirus. You apply to the ATO through the MyGov website. The ATO will then process the application and issue a determination to you and your super fund. The super fund will then pay you directly within five days of notice. Note there are ATO penalties for those who seek access to their Super who do not meet the eligibility criteria.

Under normal conditions, access to a Superannuation lump sum is restricted or “preserved” until retirement. You are generally eligible to access your Superannuation when you cease gainful employment after reaching preservation age, turning 65, suffering a permanent incapacity or terminal illness. You may be able to access a portion of your Super if you are suffering financial hardship and meet the specified criteria.

These criteria are called “conditions of release”. Once you have satisfied one of these conditions, the preservation status of your benefits changes from “preserved” to “unrestricted non-preserved” and you are eligible to withdraw your benefits as a lump sum or as an income stream, such as an account-based pension or both.

Preservation age will vary. If you were born after 1 July 1964, your preservation age is age 60. If you were born between 1 July 1963 and 30 June 1964 preservation age is 59, between 1 July 62 and 30 June 63, age 58 and prior to this you have already attained preservation age. As you are age 56, you have not attained preservation age.

If you made personal contributions to a company super fund prior to 1 July 1999, these contributions are referred to as “restricted non-preserved” benefits. These contributions become unrestricted once you cease employment with the employer they relate to regardless of your age.

Your super fund reports the preservation status of your benefits in your annual member benefits statement. Your statement will categorise your balance under the following preservation status; preserved, restricted non-preserved and unrestricted non-preserved benefits.

If you have attained preservation age and you have ceased employment, it is really important that you notify your Superannuation fund of the date that you ceased employment to ensure that the correct preservation status of your fund applies. Once the preservation status of your Super changes, your current benefits become unrestricted non-preserved, subject to the rules of the fund. Any future contributions made to your fund whether personal of employer, will be treated as preserved funds and will require you to satisfy a new condition of release.

You are generally able to withdraw any “unrestricted non-preserved” Superannuation benefits.

The tax treatment of any benefit will vary. With the exception of payments made under coronavirus government support, if you are accessing Superannuation under preservation age the tax rate is 20% plus Medicare levy (MCL), From preservation age to age 59, the first $210,000 is tax free and the remainder taxed at 15% plus MCL. Generally those over age 60 receive their benefits tax free. If you have a tax free component, as the name suggests, this is tax free.

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