Self Managed Superannuation Funds have emerged as a powerful tool that provides individuals with greater…
Superannuation is essential to retirement planning in Australia. It is a mandatory, long-term saving and investment system that helps you build your retirement fund. It requires your employer to contribute a percentage of your earnings (currently 11%) to your superannuation account, ensuring consistent savings throughout your working years. You may also want to voluntarily contribute to your super fund to boost returns.
There are many strategies on how to maximise your superannuation’s potential – both before and after you retire – and it requires understanding the system well. One important concept to learn is the Superannuation Preservation Age, which determines when you can access your super benefits.
In this article, we will explore what the Superannuation Preservation Age means, how to calculate it, and what the conditions are for withdrawing your superannuation before you reach Preservation Age. Knowing these can help you plan your retirement carefully and save money in the long term.
Understanding Superannuation Preservation Age
Preservation Age and Access to Superannuation
Strategies for Managing Superannuation
Understanding Superannuation Preservation Age
Preservation Age is the age at which you can access your superannuation benefits, subject to certain conditions. It acts as a safeguard to ensure that superannuation savings are preserved for retirement and not withdrawn prematurely. Your Preservation Age will depend on your date of birth.
How to Calculate Your Preservation Age
Calculating your Preservation Age is a simple process:
1. Start with your date of birth.
2. Then refer to the table below to find your Preservation Age based on your date of birth:
Source: The Australian Taxation Office (ATO)
Alternatively, you can use an online calculator to calculate your Preservation Age and learn other useful details (such as estimated super balance, taxes and fees, and when you’d be eligible for age pension).
Once you have worked out your Preservation Age, it becomes a valuable piece of information for your retirement planning. It helps you understand when you will be eligible to access your superannuation balance and make informed decisions for your financial future accordingly.
Factors That Determine Preservation Age
Your Preservation Age is primarily determined by your date of birth. It indicates the age at which you can typically access your superannuation funds.
The government established the Preservation Age to ensure people have enough time to save for retirement and prevent early spending that could negatively impact their future financial security. It also encourages longer workforce participation, which benefits both the economy and reduces strain on the age pension system.
However, there are exceptions that allow early access under specific circumstances, which we will discuss further below.
Keep in mind that the Superannuation Preservation Age is gradually increasing over time. For example, for those born after July 1, 1964, the Preservation Age would be 60 by 2025. Understanding these facets of the system helps you plan effectively for your retirement and make informed decisions about your superannuation savings.
Preservation Age and Access to Superannuation
Accessing your superannuation benefits is subject to specific conditions based on your preservation age. Let’s explore the conditions for access:
Conditions for Accessing Superannuation Before Preservation Age
Generally, accessing super before reaching your Superannuation Preservation Age is not allowed. However, there are special conditions under which you may be able to access your super early:
Terminal Medical Condition: If you have been diagnosed with a terminal medical condition, you may be eligible to access your superannuation early. Two medical professionals will have to certify that you have a terminal medical condition likely to result in death within the next 24 months, which would allow you to access your super as a tax-free lump sum benefit. This provision ensures that individuals facing severe health challenges can access their funds to manage their medical expenses and personal circumstances.
Permanent Incapacity: In the event of permanent incapacity, where you are unable to engage in gainful employment that you are reasonably qualified for, due to physical or mental health issues, you may be able to access your superannuation benefits.
Temporary Incapacity: If you temporarily cease work due to physical or mental ill health that is not considered permanent incapacity, you may be eligible for temporary incapacity benefits.
Severe Financial Hardship: If you are facing severe financial hardship and cannot meet your immediate family living expenses, you can apply for benefits, subject to specific criteria.
Compassionate Grounds: Benefits may be released on compassionate grounds if you can demonstrate the financial need and the release is permitted under the governing rules of your superannuation fund.
First Home Super Saver Scheme: The scheme allows you to save for your first home within your super. Contributions made since July 1, 2017, can be released, along with associated earnings, for the purpose of purchasing a first home.
Conditions for Accessing Superannuation at Preservation Age
When you reach your Superannuation Preservation Age, you become eligible to access your superannuation benefits under certain conditions:
Retiring: If you decide to retire after reaching Preservation Age, you can access your superannuation. You may choose to receive a lump sum payment, set up a regular income stream, or a combination of both.
Transitioning to Retirement (TTR): If you’re still working or want to continue working but have reached Preservation Age, you may access a portion of your superannuation benefits while continuing to work part-time or gradually reducing your working hours.
Ceasing Employment at Age 60 or Over: If you cease an employment arrangement on or after the age of 60, you become eligible to access your super benefits.
Turning 65: Once you reach the age of 65, you can access your super at any time, without any cashing restrictions.
Understanding the conditions for accessing superannuation at different stages of your life is crucial for effective retirement planning. It is important to review the governing rules of your fund and consider seeking professional financial advice to ensure compliance and make informed decisions.
Preservation Age for Different Birth Cohorts
A birth cohort refers to a group of individuals who were born within a specific time period, typically sharing the same year or decade of birth. Researchers study birth cohorts to understand how different factors impact their lives over time. Birth cohorts help us understand trends, social dynamics, and the long-term effects of events on specific groups.
A popular example of birth cohorts are generational cohorts, which roughly correspond to these time periods:
- “Baby Boomers” – who were born in 1946 up to around 1964, and are considered the largest birth cohort in history.
“Generation X” – who were born between 1965 and 1979, and represents the cohort that reached adulthood during the 1980s.
- “Millennials” – born in the 1980s, and refers to the generation that came of age during the 2000s (hence the name)
Different birth cohorts have specific Preservation Ages, which impact the timing of retirement planning and accessing retirement savings. For example, if you were born before July 1, 1960, your Preservation Age is 55. This means that once you celebrate your 55th birthday, you become eligible to access your superannuation benefits if you satisfy the relevant conditions.
On the other hand, if you were born between July 1, 1960, and June 30, 1961, your Preservation Age will increase to 56. This trend of a gradual rise in the Preservation Age continues for subsequent birth cohorts.
Let’s explore some examples of generational birth cohorts and their corresponding Superannuation Preservation Ages:
The “Baby Boomers” birth cohort – As members of this cohort reach their Preservation Age, which is typically 55 to 60 depending on their exact birth date, they become eligible to access their superannuation benefits. This cohort has been instrumental in shaping retirement planning practices and setting the stage for subsequent generations.
The “Generation X” birth cohort – Gen X faces the later Preservation Age compared to the Baby Boomers. Typically, individuals in this cohort will have to wait to access their superannuation benefits from age 60. This cohort witnessed significant changes in the superannuation landscape and experienced the growth and development of the industry during their working years.
The “Millennials” birth cohort – like Gen X, Millennials have a Preservation Age of 60. This cohort will qualify for their Preservation Age from 2040 onwards, so they still have time to adequately prepare for optimising their superannuation benefits and make important decisions regarding retirement planning and income strategies. This cohort represents a generation that has witnessed technological advancements and evolving retirement expectations.
The “Generation Z” birth cohort – Born between the mid-1990s and early 2010s, Generation Z or “Zoomers” is the cohort following the Millennials. Most Zoomers are either still children or are in the early stages of their careers so their retirement day is still far away on the horizon. It is anticipated that they will have a Preservation Age ranging from 60 to 65 or even 67, depending on future changes to legislation.
Preservation Age vs. Age Pension Age
When it comes to planning for your retirement, it’s essential to understand the difference between your Preservation Age and the Age Pension eligibility age. These two ages have significant implications for your retirement planning and accessing benefits.
Here’s what to keep in mind:
Preservation Age is the age at which you can access your superannuation savings, typically falling between 55 to 60. It is lower than the Age Pension eligibility age, which is gradually being raised from 65 to 67 years old.
Preservation Age: is the age at which you can access your superannuation savings, either upon retirement or when starting a transition-to-retirement income stream. It depends on your specific date of birth and typically falls between 55 and 60 years old. It’s important to note that your Superannuation Preservation Age is generally lower than the Age Pension Eligibility Age.
Age Pension Eligibility Age: is the age at which you become eligible to receive the Age Pension from the government. This age is gradually increasing from 65 to 67 years old, depending on your date of birth. The Age Pension is also means tested and therefore not eligible to all retirees.
Implications for Retirement Planning and Accessing Benefits
Understanding the relationship between your preservation age and the Age Pension eligibility age is important for planning your retirement effectively. Your preservation age is typically lower than the Age Pension eligibility age, which means you may need to rely on your superannuation savings for at least some time if you intend to retire before you qualify for the Age Pension.
Additionally, it’s essential to be aware that the Preservation Age in Australia is gradually increasing to keep up with the rise in the Age Pension age. The government is raising the Preservation Age from 55 to 60 years, while the Age Pension eligibility age is increasing from 65 to 67 years.
There are also government proposals to make the Preservation Age the same as the Age Pension eligibility age of 67. This approach is intended to encourage workers to stay employed for a longer duration, accumulate more substantial superannuation savings, and eventually reduce the burden on the social security system.
Keeping yourself informed about these developments can help you make informed decisions and adapt your retirement plans accordingly. Seeking professional financial advice is also highly recommended.
Strategies for Managing Superannuation
Your super is a major source of your retirement fund, and managing it wisely from the beginning will help you build a solid foundation for your retirement.
In this section, we will explore different strategies for managing your superannuation, focusing on contribution strategies, transition to retirement strategies, and accessing superannuation after reaching preservation age.
We start by looking at concessional and non-concessional contributions, which are two kinds of contributions you can make to significantly boost your retirement savings.
Concessional and Non-Concessional Contributions for Superannuation
Concessional contributions are made into a superannuation account before tax. This includes employer contributions, salary sacrifice contributions, and personal contributions where a tax deduction is claimed. These contributions are taxed at a rate of 15% within the superannuation fund. There is a yearly limit of $27,500 for concessional contributions, and unused amounts can be carried forward for up to five years.
Non-concessional contributions are made into a superannuation account after tax is paid. Examples include personal contributions from after-tax income. Unlike concessional contributions, non-concessional contributions are not taxed when deposited into the superannuation account. The yearly limit for non-concessional contributions is $110,000, and unused amounts cannot be carried forward to future years.
It is important to be aware of the contribution caps and limits for both concessional and non-concessional contributions to avoid exceeding them, which can result in additional taxes and penalties.
Strategies to maximise superannuation at different life stages
Next, let us consider these various strategies that you can undertake to make the most of your superannuation at different stages of your life:
1. Contribution Strategies Before Retiring
Whilst your super fund is still in accumulation phase, you can make different types of contributions to your superannuation to help maximise it and build a solid financial foundation for your future. These include salary sacrificing, making personal contributions, and taking advantage of government co-contributions and spouse contributions.
- Salary sacrificing – This allows you to arrange with your employer to contribute a portion of your pre-tax salary directly into your superannuation account. By doing this, you not only reduce your taxable income but also increase your superannuation savings.
- Making personal contributions – This involves using your after-tax income to contribute to your superannuation account. These contributions may be eligible for a tax deduction, providing potential tax benefits and helping to bolster your retirement savings.
- Government co-contribution – This scheme offers a valuable opportunity to boost your retirement savings, particularly for low or middle-income earners. If you meet the eligibility criteria, the government may match a portion of your personal superannuation contributions, providing a significant boost to your superannuation balance.
- Making spouse contributions – This involves contributing to your spouse’s superannuation account. By doing so, you may be eligible for a tax offset, and it can also help enhance your spouse’s retirement savings.
2. Transition to Retirement Strategies
If you have reached Preservation Age but still wish to work, you can consider Transition to Retirement (TTR) strategies. These strategies allow you to access a portion of your super while continuing to work, providing flexibility and potential tax benefits.
Here are some examples of TTR strategies to consider:
Supplementing Income: Reduce your work hours and use a TTR strategy to supplement your income with payments from your superannuation. This allows you to maintain your lifestyle while working fewer hours, and you have control over the amount and frequency of the payments within government-set limits.
Boosting Super: Utilise a TTR strategy to boost your superannuation savings. By salary sacrificing a portion of your income into your superannuation account while receiving TTR pension payments, you can maximise your superannuation balance and potentially save on tax.
Reducing Work Hours: Gradually transition into retirement by reducing your work hours through TTR strategies. This enables a smoother adjustment, helps maintain a work-life balance, and gives you time to plan how you’ll spend your life after work.
It’s important to note that starting a TTR pension may have implications on your retirement income and future superannuation balance, so careful consideration is necessary. Setting up a TTR strategy can be complex, and seeking advice from a financial adviser is highly recommended.
3. Strategies for Accessing Superannuation For Retirement
Once you reach Preservation Age and retire, you have several options for accessing your superannuation benefits. You can choose to receive a lump sum payment, establish an account-based pension, or a combination of both.
Strategies for accessing superannuation after preservation age in Australia are diverse and cater to different circumstances. Here are some examples:
Retirement: Once you reach preservation age and retire, you can withdraw your superannuation savings as a lump-sum payment and utilise it for your retirement.
Transition to Retirement Income Stream: If you have reached preservation age but haven’t permanently retired, you can still access part of your superannuation through a transition to retirement income stream (TTR or TRIS). This strategy enables you to receive regular payments from your superannuation while continuing to work. See above for more information.
Defined Benefit Pension: If you are a member of a defined benefit fund, you may be eligible to access a defined benefit pension from age 55, regardless of your birth year. Checking with your fund is important to determine your eligibility.
It’s important to be mindful of the tax implications and rules associated with accessing superannuation at different stages in your life. Seeking professional advice is advisable to ensure these strategies align with your financial goals and individual circumstances.
Preservation Age is the age at which individuals in Australia can access their superannuation benefits. This age varies depending on factors such as date of birth and government legislation.
Knowing your Preservation Age and understanding how the system works will help you strategically manage your superannuation savings, plan for retirement income, and make the most of available opportunities and benefits. It is also important to note that Preservation Age is different from the Age Pension eligibility age, and knowing the distinction between the two is crucial in retirement planning.
By being aware of the specific conditions and strategies related to accessing your super, you can optimise your financial situation once you retire.
However, it can be challenging to navigate the complexities of superannuation and retirement planning. It would be a wise move to seek the help of a professional financial adviser, who can give you financial advice based on your individual circumstances. A financial adviser can help you make sound decisions to ensure your retirement goals align with your financial capabilities.
Get Superwise About Your Superannuation with Coastal Advice Group
Superannuation is vital to your financial future in retirement as an Australian. Whatever stage you are right now in your career, learning about how you can make the most out of your long-term retirement savings plan is always a good practice.
At Coastal Advice Group, we can provide the specialist financial planning, expert knowledge and guidance you need to help you make the right financial decisions for your superannuation strategy so you can look forward to your future with confidence.
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.