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Super conditions of release frequently asked questions

Section: 12.5

Retirement

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 (eg 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). However, due to a change of circumstances, he has now decided to go back to full time work. Will his super balance revert to being preserved benefits?

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 unrestricted non-preserved benefits will be maintained. However, any super benefits accrued in respect of his new employment arrangement 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 (eg 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.

Death, disability and terminal illness

Question 1: My client's spouse died a number of years ago. She is now receiving his death benefit as an income stream and now wishes to roll this benefit back to accumulation phase. Will this amount be treated as preserved or unrestricted non-preserved benefits?

Answer: These benefits immediately become unrestricted non-preserved benefits upon the client's spouse's death. Rolling these benefits either back to accumulation phase or to another superannuation fund would not lead to a change in preservation status. The amount rolled over would, therefore, remain unrestricted non-preserved benefits and would be accessible to the client at any time.

Question 2: My client's spouse recently passed away. He received her death benefit as a lump sum payment from her super fund. He now wishes to contribute the amount received back into super and commence an income stream. Will this amount be treated as preserved or unrestricted non-preserved benefits?

Answer: Once the death benefit was paid out to your client as a lump sum, it ceased to be superannuation money. If your client were to contribute this amount back into superannuation, it would be treated in the same way as any other super contribution and would be classified as preserved benefits until a condition of released has been satisfied. This treatment may prevent your client commencing an income stream with the amount contributed (unless they have satisfied a condition of release).

Question 3: My client is terminally ill and satisfies the 'terminal medical condition' condition of release. Is she restricted to withdrawing her super benefits as a lump sum?

Answer: No. The 'terminal medical condition' condition of release is a full condition of release that converts all of a member's benefits to unrestricted non-preserved benefits. Your client can therefore choose to take a lump sum, income stream or a combination of both.

However, from a tax perspective, there is a difference. Lump sum super withdrawals for terminally ill members are specifically excluded from being taxed (regardless of the member's age), while income streams are subject to normal super income stream taxation.

Question 4: My client has taken out an income protection insurance policy through his super fund. As well as replacing salary, this policy also provides for an additional lump sum rehabilitation benefit to be paid by the insurer. Will my client be able to withdraw any rehabilitation benefit received by the fund?

Answer: The temporary incapacity condition of release only allows for the payment of a non-commutable income stream to continue (in whole or part) the income the member was receiving prior to becoming incapacitated. The lump sum withdrawal of an additional rehabilitation benefit would not comply with this condition of release and it is likely that such a benefit could not be withdrawn by the client.

Other conditions of release

Question 1: My client (age 50) has been in receipt of Newstart Allowance for the past 26 continuous weeks. However, she has ample cash reserves and is not struggling to meet her daily living expenses. Can she access some of her superannuation benefits under the severe financial hardship condition of release?

Answer: For a client aged under preservation age plus 39 weeks, one of the requirements in satisfying the severe financial hardship condition of release is that a member must be unable to meet reasonable and immediate family and living expenses.

While this condition of release allows payments of up to $10,000 per 12-month period, benefits would likely only be released by a fund to the extent that they are required to meet reasonable and immediate family or living expenses. Your client would therefore be unlikely to qualify for a release of benefits under the severe financial hardship condition of release.

Question 2: My client (age 56) has been in receipt of Newstart Allowance for the past year. However, she has ample cash reserves and is not struggling to meet her daily living expenses. Can she access some of her superannuation benefits under the severe financial hardship condition of release?

Answer: Yes. For clients who are at least preservation age plus 39 weeks, the severe financial hardship condition of release is simply met by the client receiving an eligible Commonwealth income support payment for a total of 39 weeks since reaching preservation age, as well as not being employed for 10 or more hours per week when applying to access benefits. Unlike for younger clients, there is no requirement in this situation to be unable to meet certain family or living expenses. Where a client who has reached preservation age plus 39 weeks satisfies the severe financial hardship condition of release, all benefits become unrestricted non-preserved.

Question 3: My client (age 45) is unable to meet her daily living expenses and wishes to access some of her preserved super benefits. However, she cannot satisfy the severe financial hardship condition of release as she has not received an eligible Commonwealth income support payment. Can she access her super benefits under the compassionate grounds condition of release?

Answer: The compassionate grounds condition of release (applied for directly to the Department of Human Services) can only allow preserved superannuation benefits to be accessed in very limited circumstances, including:

  • to pay for medical treatment or transport for a member or their dependant
  • to enable loan repayments to prevent foreclosure of a member's principal place of residence
  • to pay for modifications to a member's home or vehicle to accommodate the needs of a member or dependant with a severe disability, or
  • to pay for costs associated with a member's palliative care, or a member or dependant's death, funeral or burial.

Assuming the expenses that your client is unable to pay are general living expenses, it is unlikely that they will be able to access super benefits under this condition of release.

Question 4: My client's principal home is at risk of foreclosure because he is unable to continue to meet minimum mortgage repayments. Will he be able to access enough benefits under the compassionate grounds condition of release to enable him to extinguish his mortgage?

Answer: No. Where a member applies under the compassionate grounds condition of release to access preserved super benefits to enable them to make mortgage repayments to prevent foreclosure on their principal home, the amount of benefits that can be released is limited to three months of repayments and 12 months of interest in respect of the existing loan in each 12 month period. Your client may, therefore, be able to apply to have some benefits released to enable continued repayments, but will not be able to access benefits to enable complete repayment of the loan.

Question 5: My client is aged 48. His super benefit consists of preserved benefits and restricted non-preserved benefits. How can he access his restricted nonpreserved benefits?

Answer: In addition to all of the conditions of release that allow preserved benefits to be accessed, a specific condition of release allows restricted non-preserved benefits to be accessed where the client ceases employment with an employer who has contributed to the fund on their behalf. Therefore, assuming that your client's current employer is contributing to the fund on his behalf (eg super guarantee contributions), he could access any restricted non-preserved benefits if he ceased employment, even though he is only 48.

Question 6: My client has exceeded her non-concessional cap and, upon being provided with a determination from the ATO, has elected within 60 days to withdraw the excess amount (plus 85% of a deemed earnings amount). Her super benefit consists of preserved benefits and unrestricted non-preserved benefits. Which benefits will this withdrawal come from?

Answer: As with any condition of release that does not make all benefits accessible, the withdrawal would need to come from unrestricted non-preserved benefits first, then from restricted non-preserved benefits, then preserved benefits.

In your client's case, provided the withdrawal did not exceed her level of unrestricted non-preserved benefits, it would reduce her unrestricted non-preserved benefits only. This is the case even though the contribution that triggered this situation would form part of your client's preserved benefits.

Last modified: Tuesday, May 2, 2017