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Retirement condition of release

Section: 12.4

The definition of retirement depends on the member's age and is summarised as follows:

In the case of a person who has reached a preservation age that is less than 60, the retirement condition of release is satisfied where:

  • an arrangement under which the member was gainfully employed has come to an end, and
  • the trustee is reasonably satisfied that the person intends never to again become gainfully employed for 10 hours or more each week.

A person with a preservation age of less than age 60 who ceases gainful employment before age 60 may still retire after age 60 provided the trustee is satisfied that at the time of the benefit claim the person intends never to again become gainfully employed for 10 hours or more each week.

In the case of a person who has attained the age of 60, the retirement condition of release is satisfied where:

An arrangement under which the member was gainfully employed has come to an end, and either of the following circumstances applies:

  • the person attained that age on or before the ending of the employment, or
  • the trustee is reasonably satisfied that the person intends never to again become gainfully employed for 10 hours or more each week.

Retirement condition of release frequently asked questions

Question 1: My client has reached preservation age and intends to reduce her working hours to less than 10 per week. Her current employment arrangement is the only job she's ever had. Will she meet the retirement condition of release?

Answer: No. For a client who has reached preservation age, the retirement condition of release has two requirements that must be satisfied:

  • they have ceased a gainful employment arrangement, and
  • they intend not to become gainfully employed for 10 or more hours per week in the future.

Although your client has reduced her work hours, she has not ceased a gainful employment arrangement and therefore does not meet the retirement condition of release.

Question 2: My client has reached preservation age and intends to reduce his working hours to less than 10 per week. He has changed jobs numerous times throughout his career. Will he meet the retirement condition of release?

Answer: Yes. As discussed in the previous question, there are two requirements that must be met to satisfy the retirement condition of release when aged between preservation age and 60.

Your client has ceased a gainful employment at some time in the past. There is no requirement for this cessation of gainful employment to occur after reaching preservation age or to be a recent event. Because your client also intends to work less than 10 hours per week in the future, the requirements of the retirement condition of release have been satisfied.

Question 3: My client has reached preservation age but has never before been gainfully employed. Can she meet the retirement condition of release?

Answer: No. While there are two ways of meeting a retirement condition of release (one that applies from preservation age and one that applies exclusively from age 60), a key requirement to both is that the client ceases a gainful employment arrangement.

In your client's situation, this is not currently possible and she would therefore need to rely on a different condition of release in order to access preserved and restricted non-preserved super benefits (e.g. reaching age 65).

Question 4: My client reached preservation age a couple of years ago and met the retirement condition of release at that time (including making a declaration that he intended not to become gainfully employed for 10 or more hours per week in the future) and converted his entire super benefits into an account based pension. However, due to a change of circumstances, he has now decided to go back to full time work. Will his account based pension become preserved again?

Answer: No. Once the retirement condition of release has been met, all benefits accrued by the client at that point become unrestricted non-preserved. This condition of release is satisfied by the fund trustee looking at the client's intention regarding future work at that point in time (a declaration by the client is generally required).

If your client made a genuine declaration that he intended not to be gainfully employed for 10 or more hours per week but, due to a change in circumstances that was unanticipated at the time of making the declaration, he starts working for 10 or more hours per week, his account based pension will remain unrestricted non-preserved and fully accessible. However, any new contribution and super benefits accrued since he met the condition of release will be preserved until a new condition of release has been satisfied.

Question 5: My client is a self-employed sole trader who has just reached preservation age. His self-employment involves contracting to provide services to many different businesses and he often pays others to assist in the delivery of these services. He has just finished a contract to provide services to one particular business and is not undertaking any work at present. Can he meet the retirement condition of release?

Answer: No. For clients who are genuinely self-employed, a gainful employment arrangement involves their entire self-employment arrangement. Each instance where services are provided is simply part of their overall arrangement and, therefore, your client will not cease a gainful employment arrangement each time the provision of services to a particular business comes to an end.

For a self-employed client who has reached preservation age, the retirement condition of release will be met when their entire self-employment arrangement ends (e.g. their business is wound up) and, if this occurs prior to age 60, they declare their intention not to become gainfully employed for 10 or more hours per week in the future.

Question 6: My client is a self-employed sole trader aged 60. His self-employment involves contracting to provide principally his labour to many different businesses and is paid based on hours worked. He has just finished providing contracting to one particular business and is not undertaking any work at present. Can he meet the retirement condition of release?

Answer: Because your client is involved in contracts that principally involve him providing labour and being paid for hours worked, it is likely that (unlike the previous question) each contract he enters into with a different business would be viewed as a separate gainful employment arrangement. It is, therefore, likely that the client would meet the retirement condition of release when one contract ends, even if he intends to continue contracting to other businesses.

Question 7: My client has reached age 60 and has two employment arrangements - one full-time position and a part-time weekend job. Will she meet the retirement condition of release by ceasing one of these arrangements?

Answer: Yes. Where your client has reached age 60, they meet the retirement condition of release simply by ceasing a gainful employment arrangement after reaching age 60. The fact that your client might have other employment arrangements that continue is not relevant. Your client could therefore meet the retirement condition of release, for example, by simply ceasing the part-time weekend job.

It is important to note that while this action would cause all superannuation benefits that accrued up to that point to become unrestricted non-preserved, any future contributions and earnings in respect of the employment that your client is continuing would be preserved until a further condition of release is satisfied.

Question 8: My client has reached age 60 and is employed as a salesperson. He has been offered a promotion within the company to Sales Manager. Would this change in position mean that he will satisfy the retirement condition of release?

Answer: While the client's employment arrangement at the company is changing, there is an agreement or understanding at that time that he will continue to be gainfully employed by the company. Your client is therefore unlikely to have ceased a gainful employment arrangement (even though it has changed) and therefore would likely not satisfy the retirement condition of release.

Question 9: My client has reached age 60 and is employed as a salesperson. As a lifestyle change, he has agreed with his employer to change to a part-time administration position at significantly reduced pay. Would this change in position mean that he will satisfy the retirement condition of release?

Answer: As with the previous question, while the client's role at the company is changing, there is an agreement or understanding at the time that he will continue to be gainfully employed by the company in the future. Your client is, therefore, unlikely to have ceased a gainful employment arrangement and would likely not satisfy the retirement condition of release.

Question 10: My client has reached age 60 and is employed as an IT consultant. To provide flexibility for both her and her employer, they have decided to terminate her employee position and immediately rehire her as a contractor. Will this change mean that she will satisfy the retirement condition of release?

Answer: While your client's contract has certainly ended, there is at that time an agreement or understanding that she will continue to provide services to the company for gain or reward. Your client is, therefore, unlikely to have ceased a gainful employment arrangement and would likely not satisfy the retirement condition of release.

Question 11: My client is aged 60 and works full time. However, he is going on one year of unpaid leave. Will he meet the retirement condition of release because he is no longer employed for gain or reward?

Answer: While the client may not be receiving salary, wages or other payments during the time they are away from work on unpaid leave, there has been no end to their overall employment arrangement, which involves working for gain or reward. They would, therefore, not meet the retirement condition of release.

Question 12: My client is aged 60 and is a director of a private company. Will he meet the retirement condition of release is he resigns from his directorship?

Answer: The answer to this question depends on whether resigning from being a director of company constitutes cessation of a gainful employment arrangement. While a director of a company is not considered to be an employee for common law purposes, section 15A of the SIS Act expands the meaning of employee for superannuation purposes to include company directors who are entitled to payment for the performance of their duties. Therefore, if the client is entitled to receive, and does actually receive payment or reward for the performance of the directorship duties and that arrangement has now come to an end, the client would satisfy the retirement condition of release. Note, a director is generally not entitled to be paid for their services unless specifically permitted under the company's constitution or it has been approved in a shareholder resolution. Practically speaking, the client should have clear evidence that they have received payment as well as the cessation of the directorship.

ATO case study on whether gainful employment ceased

The ATO has published the following case study on its website to assist trustees when deciding whether a member's gainful employment arrangement has ceased.

Case study scenario

Charlie is 57 years old and a beneficiary of the Crackle discretionary trust (Crackle). Crackle carries on a smash repairs business. Charlie has been an employee of Crackle for nearly 20 years. For the 2016 income year, Charlie ceases his employment with Crackle. He is paid out any accumulated leave entitlements owed to him.

Charlie no longer has an employment contract with either Crackle or any other entity (related party or arm's length). However, after Charlie's employment has ceased, he continues to perform substantive duties for Crackle (much the same as when he was an employee). Charlie receives distributions of trust income from Crackle.

The ATO's comments

The ATO's view is that where a business is operated through a family trust or private company, they may need to have a closer look at the arrangement before they can determine whether the retirement condition of release is satisfied. Any evidence indicating that the individual is still performing substantive duties could indicate there is an ongoing relationship between the two. It would be unusual for a private business to allow someone who is not employed or contracted to assist in running the business, without an agreement or understanding in place.

In this case study, if Charlie's work lead to increased turnover for the business, resulting in larger trust distributions or a disproportionate increase in dividends, the Commissioner could take a view that the arrangement under which Charlie was gainfully employed has not come to an end as he is still receiving gain or reward from distributions from the Crackle Discretionary Trust.

Last modified: Wednesday, May 1, 2019