If you’re thinking seriously about retirement, it’s likely been a while since you were told “sorry, you’re too young for that”.
However, the recent increase to superannuation’s preservation age might be just cause for you to reminisce. This is because you still might be younger than you think for some things, including accessing your super.
From 1 July last year the preservation age, that is the age at which you can access superannuation, increased. This includes drawing an income stream.
Preservation age is the youngest age that Australians can access their preserved superannuation savings without satisfying another condition of release. For example, in a self-managed superannuation fund (SMSF) it is common for members to use a transition to retirement (TTR) strategy as they approach retirement. Before they commence a TTR pension they must have reached their preservation age.
Prior to 1 July 2015 preservation age was 55-years-old. So anyone born before 1 July 1960 was able to access their superannuation benefits from age 55. Over the next ten years the preservation age will increase from 55-years-old to 60-years-old.
The increase in preservation age is nothing new; in fact these changes came in nearly 20 years ago, as part of the 1997-98 Federal Budget. However, since preservation age has been static at age 55 for a number of years this increase may catch some people by surprise.
It is important that SMSF trustees are aware of the age at which superannuation can be accessed. Any inadvertent or accidental payments to a member who is not yet eligible may breach the payment rules and could result in significant penalties.
The table below indicates the new preservation ages based on a person’s date of birth, and the financial year in which they will be able to access their super.
Table 1: Preservation age based on date of birth
[1]Those born after 30 June 1964 must now wait until 60-years-old to be eligible to access their superannuation. You might have to work longer than currently expected or rely on other non-superannuation savings in retirement until preservation age is met.
A member who turns 55-years-old this financial year cannot start a TTR pension or access their superannuation yet. Their preservation age is now age 56 which will be achieved next financial year.
Similarly someone turning 55 next financial year cannot start a TTR pension or access superannuation until they reach age 57 in financial year 2018-19.
What this means for your retirement
Remember to check your preservation age to avoid breaching the access to superannuation rules, when you are looking to access superannuation, or start a pension.
Case study: SMSF retiree looking to move into retirement
Consider James and Sam. They are good mates who play golf together on Sundays, and they each have an SMSF.
Last weekend at golf they were discussing retirement and how Sam’s wife Lucy started receiving a pension from their SMSF last year when she turned 55.
James is single and would like to continue working a bit longer, but wants to reduce his hours. He mentioned that he was going to start a transition to retirement pension soon in his SMSF. Sam is hoping to retire at the end of this year so he and Lucy can go on a cruise.
Later that afternoon Sam came across this article talking about when members can access super…
Sam remembered that he attended James 55th birthday on 3 February 2016. Since his date of birth is 3 February 1961 James has a preservation age of 56. He would be eligible to start a TTR pension from 3 February 2017 when he turns age 56. Sam will give James a call and let him know he actually can’t start a TTR pension until February next year and might want to delay reducing his hours at work.
Sam was born on 23 August 1961 and therefore has a preservation age a 57. He is quite surprised by this as it means he cannot access his superannuation until he turns 57 on 23 August 2018! If he retires this year he and Lucy will need to live off their other savings and Lucy’s pension for nearly two years before he can access his own superannuation.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.