Annie Dawson
Senior SMSF Technical Specialist
Retirement. It’s a condition of release with no cashing restrictions (ie there are no strings attached!). Qualify as retired for super purposes and a member not only has access to their super benefits but may be entitled to tax concessions as well.
Meeting this full condition of release allows a member to draw their super benefits as lump sum withdrawals or commence a retirement phase pension (subject to a member’s available transfer balance cap space). Those already in receipt of a transition to retirement income stream will, subject to the fund’s trust deed, no longer be subject to a 10% maximum pension limit and will be able to take lump sum commutations from the pension. Not only are pension payments taxed concessionally but the fund itself may stop paying income tax on some or all of its investment income.
There are two ways a member can qualify as retired for super purposes. The first way involves a member reaching their preservation age, having a paying job that has ended (or more technically “an arrangement under which the member was gainfully employed has come to an end”), and the trustee is satisfied that the member intends never to become gainfully employed again for at least 10 hours per week in the future.
Alternatively, if a member has reached 60, retirement can also occur if the member ends a gainful employment arrangement after turning 60. A member’s future work intentions are irrelevant. It simply provides that retirement can also occur if the member ends a gainful employment arrangement after turning 60.
Regardless of which way a member satisfies the retirement definition, it is critical that the member has been gainfully employed. You can’t retire if you have never been gainfully employed. For super purposes, gainfully employed means “employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment”. In the context of the retirement definitions, gainful employment is often described as having “a paid job” but obviously it extends more broadly to include some arrangements where the member is self-employed or is receiving monetary rewards other than a conventional salary.
But what about members who carry on a business via a structure such as a family trust? Arrangements are often kept informal and as a result, a member may struggle to demonstrate they are gainfully employed. Is a member gainfully employed if they work in the business but only receive a trust distribution? What if a member is on leave from work but doesn’t have a formal employment contract to substantiate the employment arrangement in place? And has a member actually ceased an arrangement under which they are gainfully employed if they stop getting paid but keep helping out?
To ensure a member has genuinely retired for super purposes (and has not illegally accessed their benefits), it will be critical to ensure they were actually gainfully employed and genuinely ceased that arrangement.
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