Retirement in a Covid-19 world – Part 2

Sadly many have lost their jobs during Covid-19. Obviously there have been temporary changes to superannuation conditions of release to introduce the new compassionate ground – coronavirus. But what about those who are over preservation age, may not work again and are looking for something more substantial or long lasting when it comes to accessing their super? There have been no changes to the definition of “retirement” but how does this work in a Covid-19 environment?

Our previous article described the situation for anyone already over age 60.

But what about someone over preservation age but not yet 60 who has recently lost their job or been stood down? How does superannuation access work for them?

In this age bracket, an individual is only retired if they:

• have ended an arrangement under which they were gainfully employed (ie, a paid job) at some point in the past – potentially even many years ago, and
• never intend to be gainfully employed 10 or more hours per week again in the future.

The challenge in the current environment is that many who have lost their jobs or experienced a reduction in working hours fully intend to look for work (or return to an existing job) as soon as possible. They cannot state that they never intend to work 10 or more hours per week in the future. A number of very real situations at the moment simply don’t meet the definition – for example, those who are:

• resigned to the fact that they may be out of work for some time, or
• expecting their current employer to fold but nonetheless staying on the books under their normal terms and conditions to receive the JobKeeper subsidy and just in case things improve, or
• anxious that they may be unable to find work after the pandemic, or
• planning to take a break for now and worry about finding work when the crisis passes.

In each case, there is an active intention to work again in the future.

Of course, transition to retirement income streams are still an option for cash flow purposes but don’t provide the same tax concessions or access as retirement phase pensions. 

Depending on the amount of income they need, an individual in this age bracket might well be better placed to apply for the $10,000 superannuation payment under the compassionate ground – coronavirus. This amount is tax free whereas any pension paid from a transition to retirement income stream will generally be added to their assessable income. While it comes with a 15% tax offset, someone who has already received substantial income earlier in the year may still pay some tax on a superannuation pension in April – June.

Of course, we are all allowed to change our minds. Someone who has:

• been stood down or suffered a reduction in work hours (and ceased another paid job at some point in the past) or
• actually lost their pre-pandemic job

could choose to retire at any time by switching their intentions and confirming that they never intend to be gainfully employed 10 or more hours per week in the future.

It would be important that this is actually true.

Retirement occurs at the time their intentions change. At that point their situation is the same as we described in Part 1 when it comes to starting retirement phase pensions, transfer balance caps, converting transition to retirement income streams to retirement phase pensions etc. Like the group described in that article, an existing TRIS won’t become a retirement phase pension until the member has formally notified the trustee of their superannuation fund (even if the fund is an SMSF) of their retirement, which gives them time to re-arrange their pensions if necessary. Note also that unlike those who needed a specific “event” to trigger retirement (eg ending a paid job after turning 60), someone who has retired because they don’t intend to work 10 or more hours per week in the future can be permanently retired. Provided they confirm to the trustee that their intentions have not changed, new earnings or contributions added to their superannuation account are not preserved. Any new pension they start in the future will be a retirement phase pension.

It is the intentions that are key here. As soon as someone changes their mind and decides they’d like to work again they “unretire”. This might technically happen well before they actually land a job and possibly even before they start looking for one.

If they do stop being retired, existing super isn’t suddenly reclassified as preserved and retirement phase pensions don’t revert back to being transition to retirement phase pensions. But it does return them to the position where all subsequent increases in their accumulation account (earnings, contributions etc) are preserved.

Retirement phase pensions are a curious quirk in the system here – earnings within a retirement phase pension account are unpreserved even if the recipient returns to work. It’s one of the attractions for someone in this position of gathering up whatever unpreserved superannuation they do have and putting it into a pension. As long as the pension contains no preserved super at all, it will be a retirement phase pension and completely unpreserved forever.

Unfortunately this group are also unable to “retire” (in a superannuation access sense) by taking on a temporary job stacking shelves. Ending a paid job is only a retirement definition for someone over 60. For anyone between preservation age and 60 it’s all about their intentions for the future.