Superannuation Guide - Withdrawing your superannuation
When can I withdraw my money?
Generally you can withdraw your non-preserved contributions (ie money you have paid into your fund and not claimed a deduction for) at any time. However, preserved moneys can usually only be withdrawn when you retire and reach what is called the “preservation age).
You cannot withdraw preserved contributions, until you:
- retire and reach preservation age (between the age of 60 or 55 depending on your date of birth);
- turn 65;
- qualify under what is called the “transition to retirement” rules;
- suffer from a total and permanent disability;
- have a terminal illness and are under the age of 60;
- die; or
- can show that there is severe financial hardship or other compassionate grounds.
You should also keep in mind that if you have been contributing over a number of years, the law has changed what is considered as preserved contributions. This means that although you may have thought that contributions were not preserved, this may not be the case. After 1 July 1999, the law changed so that all contributions are considered to be preserved.
What is severe financial hardship?
There are two requirements:
- You must be have been receiving a social security pension or benefit for the last 26 weeks.
- You must be "unable to meet reasonable and immediate family expenses".
The decision about the second requirement is made by the fund trustee, although the Australian Prudential Regulation Authority has produced guidelines for trustees to use when making these decisions. A copy of these guidelines is on the APRA web site (there's no direct link so just type in Guidelines for Trustees in the Search function).
Note, if you are over the age of 55 there may be additional requirements. Contact the Australian Prudential Regulation Authority for advice.
What are "compassionate reasons"?
Compassionate reasons are defined in the Regulations and include where you have expenses for yourself or a dependant when:
- medical treatment that is not available through the public health system is required for a life threatening illness, acute or chronic pain;
- medical transport is required for the conditions just mentioned;
- modifications to the family car or home are required to meet the needs of a disabled dependent;
- palliative care or death related expenses (e.g. funeral) are required.
You must first apply to the Australian Prudential Regulation Authority and you must also meet any of the fund's specific requirements.
How is it paid?
If you withdraw money from your superannuation you can choose to receive this by lump sum or in the form of regular payments, like a pension.
If the benefit is paid as a pension, your accumulated contributions are left in the fund, which uses it for reinvestment and the fund pays you regular "pension-like" payments.
It's also possible to take the lump sum and reinvest it somewhere else. If you do this, you can also be paid regular payments - this is often called an "annuity".
Another option is an "allocated pension", which is a pension that allows you to withdraw capital lump-sums at any time.
There is also another option under the “transition to retirement” scheme. This allows you to keep working after your “preservation age” and access some of your superannuation. Make sure you get financial advice if you are contemplating this.
Lump sum or pension/annuity?
Which is best? Of course this depends on your individual circumstances. But for most people it is useful for the retirement benefit to be paid as a form of pension/annuity. Some advantages are:
- it continues the traditional form of payment that members have had throughout their working life, because the payments are made in a way that is similar to a wage;
- there is always a danger that the lump sum can be wasted;
- the investment decisions continue to be made by the trustees of the fund;
- some pension payments can be indexed to take account of inflation;
- you may be eligible for a tax rebate; and
- dependants may continue to receive the benefit after your death.
How much tax will I pay?
From 1 July 2007 withdrawals from superannuation are tax free for most people aged 60 or more. For people between 55 and 60, a part of the withdrawal will be tax free and part will be taxed at a concessional rate. The payments can be taken as a lump sum or by way of an income stream.
Can I retire early?
You can retire any time you like, but you may not have an immediate right to access your superannuation.
What if I die before retirement?
If you have made a binding nomination and appointed a beneficiary, this person will receive your funds. Note, some funds do not allow binding nominations.
If you haven’t done this, the trustee decides who they pay the money to based on what is set out in the trust deed.
Note, it is the nomination that is important when it comes to superannuation, not your will.
Superannuation death benefits are taxed differently depending on who receives them. This depends on whether the recipient is a “dependent” under the superannuation laws or a “dependent” for tax purposes. A “dependent” for tax purposes includes:
- a spouse or de facto i.e. a married partner or a domestic partner who, although not legally married to you, lived with you on a genuine domestic basis recognised by the law in the same way as a husband or wife;
- a child under 18;
- someone financially dependent on you (this could include an adult child); or
- a person with whom you had an “interdependent” relationship (e.g. may be a same sex relationship or someone with whom you lived in a close and ongoing relationship with financial and domestic support).
So, for tax purposes:
- super benefits paid to dependants are tax-free;
- benefits paid to “non-dependents” are taxed.
Yes, this is confusing, but the crucial issue is this – although the superannuation laws allow you to make a binding nomination to any dependent, if that recipient is not also a dependent for tax purposes, their payout may well be taxed. Still confused? Remember this - if you have adult children who are no longer financially dependent on you, make sure you discuss with your accountant the tax implications of a binding nomination in their favour. Some in the superannuation industry describe this tax as a de facto death duty – this is a fair description given that a significant percentage of superannuation beneficiaries will be financially independent adult children of the deceased member.
What if I become disabled?
Whether this is because of a medical condition or an injury, funds will convert the superannuation benefit into a disability benefit - different funds have different conditions.
There are two types of disability:
- Total and permanent disability (TPD) - this is provided for by many funds through insurance cover. It usually means you will not be able to resume work in any occupation for which you are trained or experienced in.
- Total and temporary disablement - this applies if you are expected to return to work some time in the future.
A payment for temporary disablement will vary between funds - check the explanatory booklet that is distributed to members. The trust deed will tell the trustees what to do in this situation, but usually there will be a pension-type payment until you return to work.
Last Updated – June 2012
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This fact sheet is intended to be general information about the law in Australia. It is not a substitute for legal or other professional advice. Lawscape Communications Pty Ltd and Fairfax Digital Ltd do not accept responsibility for loss to any person, who either acts or does not act because of this fact sheet. Last Updated - October 2005