SMSF Strategy Guide: Online Library

Benefits rules & limits

SMSF Education
Smsf strategy guide: Online library

What are the preservation rules

BACKGROUND

Superannuation is effectively a bargain that you do with the Government. On the one hand, it (as a savings vehicle) enjoys various tax concessions, such as investment earnings being taxed at a lower rate of 15%. The flipside to this is that you cannot access the benefits until your retire, or meet another condition of release.

PRESERVATION COMPONENTS

When it comes to the preservation of your money with your SMSF, there are three different components. Each have their own characteristics in terms of how you can access you benefits.

Preserved

This is the most common component for those in the accumulation phase. These benefits cannot be accessed unless a condition of release has been met, with a nil cashing restriction. Since 1999, all contributions to superannuation have been known as preserved.

Restricted non‑preserved

This component is quite rare these days. These benefits cannot be accessed unless the member ceases employment with an employer who had at some point contributed to their superannuation fund. These benefits then become unrestricted non‑preserved and the member can access them at any time.

Unrestricted non‑preserved

Unrestricted non‑preserved benefits can be accessed at any time.

CONDITIONS OF RELEASE

Conditions of release are the circumstances under which a member’s preserved benefits become unrestricted non‑preserved, and thus can be accessed at any time by the member. Thus, these are the circumstances that have a nil cashing restriction, and include:

  • attaining age 65;
  • attaining age 60 and ceasing an employment arrangement;
  • attaining preservation age, and ceasing gainful employment with the intention of never again being gainfully employed;
  • total and permanent disability; and
  • death.

There are other conditions of release that can provide a member with access to their superannuation, but that access is limited. These include:

  • transition to retirement: this enables a member who has attained their preservation age, to access their superannuation benefits through the commencement of a non‑commutable income stream;
  • termination of employment: if a member of a superannuation fund terminates employment and their employer had contributed to their superannuation fund at any time, their benefits can be accessed as follows:
    • restricted non‑preserved: nil cashing restriction;
    • preserved: with a non‑commutable lifetime pension or non‑commutable lifetime annuity;
  • terminal medical condition
  • compassionate grounds
  • severe financial hardship; and
  • temporary disablement

PRESERVATION AGE

The references above to your ‘preservation age’ depend on the year you were born, as follows:

  • Born before 1 July 1960 – 55 years; or
  • Born between 1 July 1960 to 30 June 1961 – 56 years; or
  • Born between 1 July 1961 to 30 June 1962 – 57 years; or
  • Born between 1 July 1962 to 30 June 1963 – 58 years; or
  • Born between 1 July 1963 to 30 June 1964 – 59 years; or
  • Born after 30 June 1964 – 60 years.

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