An SMSF member who is on a TTR pension, is 63 years of age works 2 days per week (12 hours) for one employer, and wants to reduce to one day per week, ie; 6 hours per week (less than 10 hours).
Under the SIS Regs. 6.01(7)(b) a person is considered retired if they “cease an arrangement” under which they were gainfully employed, AND is either over 60 years of age, OR will not be working more than 10 hours per week in future.
Does the member need to resign completely from her job, or does the above “change in arrangement” satisfy her condition of release for retirement.
Thanks
A: The rules surrounding the definition of retirement need to be considered based on the age and the activities of the member at the time of ‘retirement’. A good publication from APRA on the payment standards, which unfortunately been archived, is helpful in determining how the rules could be interpreted. Here is a link to the publication (refer to paras 18 to 22 reproduced below, relevant paragraphs are highlighted in yellow):
http://www.apra.gov.au/Super/Documents/Prudential-Practice-Guide-SPG-280-Payment-Standards.pdf
- The SIS Regulations include two alternative age-related definitions of retirement.
- The first definition of retirement applies where a member has reached their preservation age and this is less than 60. In these circumstances, the member’s ‘retirement’ occurs when an arrangement under which the member was gainfully employed has come to an end and the RSE licensee is reasonably satisfied that the member intends never again to become gainfully employed either on a full-time or a part-time basis (i.e. for 10 or more hours per week).
- The second definition of retirement applies when a member has reached the age of 60. In these circumstances, a member’s retirement is considered to have occurred if an arrangement under which the member was gainfully employed has come to an end on or after the member attained the age of 60, or the RSE licensee is reasonably satisfied that the member intends never again to become gainfully employed either on a full-time or a part-time basis.
- The two definitions of retirement have slightly different tests applicable to them. Under the first definition of retirement (where preservation age is less than 60), an RSE licensee must be reasonably satisfied that the member intends never again to become gainfully employed on a full-time or part-time basis. Under the second definition of retirement (where preservation age is 60), an RSE licensee only needs to be satisfied of the same matter where the member ceased gainful employment prior to age 60 (i.e. where the member ceased gainful employment after age 60, this is sufficient evidence of retirement and the member’s intentions for future employment are not a consideration in these circumstances). In either case, proof of age will be required. Where the RSE licensee must be reasonably satisfied that the member intends never again to become gainfully employed, additional evidence will be required to support this. Proof of retirement may be satisfied by obtaining evidence that the member’s gainful employment has ceased (e.g. a statement from the employer) and of the member’s intention, at the time of the claim, to never again be gainfully employed either on a full-time or a part-time basis (e.g. a statutory declaration from the member).
- Where a member has reached the age of 60, is in two or more employment arrangements at the same time, and ceases one of these employment arrangements, this is a valid condition of release in respect of all preserved and restricted non-preserved benefits accumulated up until that time. However, it is APRA’s view that this will not change the character of any preserved or restricted non-preserved benefits that accrue after the condition of release has occurred. A member will not be able to cash any further benefits or investment earnings accrued from another existing employment arrangement, or any benefits or investment earnings from a new employment arrangement, until a further condition of release occurs.
Our understanding of ceasing the employment relationship is that the employment must have come to an end. Merely altering the number of hours worked or the activities undertaken would not be the cessation of the employment arrangement.
In relation to the hours of work, if a person is between preservation age and under age 60, the definition of retirement will be satisfied if the person has ceased employment and at that time intends never to engage in gainful employment of more than 10 hours per week. This restriction does not apply to anyone age 60 and above which requires that one employment arrangement has ceased.
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