Conditions of release
To cash preserved benefits or restricted non-preserved benefits, a member must satisfy one of the conditions of release.
Unrestricted non-preserved benefits may be cashed at any time.
Some conditions of release restrict the form of the benefit (for example, lump sum or pension) or the amount of benefit that can be paid. These are known as 'cashing restrictions'.
Duration 2:12. A transcript of retirement and conditions of release is also available.
The most common conditions of release for paying benefits are that the member:
In special circumstances at least part of a member’s super benefits can be released before the member has reached preservation age. These are:
As trustee, you must ensure that the member has met a condition of release before you release any funds, and check that the governing rules of your fund allow it. It's possible that a benefit may be payable under the super laws but not under the rules of your SMSF
Generally, rollovers to other super funds don’t require the member to satisfy a condition of release, subject to the governing rules of your SMSF.
Payments of benefits to members who have not met a condition of release are not treated as super benefits – instead, they will be taxed as ordinary income at the member's marginal tax rate. Significant penalties may also apply to you as trustee and to your fund.
Duration 2:02. A transcript of SMSF loans and early access is also available.
Retirement under super laws
If the member is:
- under 60 years of age – they can access their preserved benefits only when they reach preservation age, cease gainful employment and have no intention to become gainfully employed in the future
- at least 60 years of age – they can access their preserved benefits when they leave a job.
For retirement there are no restrictions on the form in which the benefits can be taken.
Transition to retirement (TRIS)
An SMSF can pay a transition to retirement income stream to a member who has reached preservation age and is still working, provided that the trust deed of the fund allows this type of income stream to be paid.
A transition to retirement income stream must be an account-based pension. The amount paid to the recipient each year must meet a specified minimum and must not exceed 10% of the account balance on the commencement of a TRIS for the year it starts or on 1 July for each subsequent year.
The transition to retirement measure can be complex. It's best to get advice from a financial adviser, accountant or tax professional.
Ceasing an employment arrangement on or after the age of 60
If a member who is 60 or over gives up one employment arrangement but continues in another employment relationship, they may:
- cash all benefits accumulated up to that time
- not cash any preserved or restricted non-preserved benefits accumulated after that condition of release occurs – these benefits can't be cashed until a fresh condition of release occurs.
A member who has reached age 65 may cash their benefits at any time. There are no cashing restrictions, which mean the benefits can be paid as an income stream or a lump sum.
A fund member is not compelled to draw down their super once they reach a particular age. They can keep their benefits in the fund indefinitely. The only time it is compulsory for an SMSF to pay out a member’s benefit is when a member dies.
Terminating gainful employment
Subject to the governing rules of your fund, where a member (who has not met another condition of release) has ceased employment with an employer who had contributed to the member's fund, on termination:
- all preserved benefits may be paid, but they must be taken as a lifetime pension or annuity, which can't be commuted into a lump sum (unless the preserved benefits are less than $200, in which case the member can cash the benefits without restriction)
- all unrestricted non-preserved benefits can be cashed out on request from the member (no cashing restrictions).
A member's benefits may be cashed if they cease gainful employment and you're satisfied that the member is unlikely, because of ill health, to engage in gainful employment that they are reasonably qualified for by education, training or experience. There are no cashing restrictions on payment of benefits.
A member's benefits may be paid if you're satisfied that the member has temporarily ceased work due to physical or mental ill health that does not constitute permanent incapacity. In general, temporary incapacity benefits may be paid only from the insured benefits or voluntary employer funded benefits.
It's not necessary for the member's employment to fully cease but, generally, a member would not be eligible for temporary incapacity benefits if they were receiving sick leave benefits. The benefit must be paid as an income stream for the period of the incapacity and can't be commuted to a lump sum.
Severe financial hardship
To release benefits under severe financial hardship you need to be satisfied that the member:
- can't meet reasonable and immediate family living expenses
- has been receiving relevant government income support payments for a continuous period of 26 weeks and was receiving that support at the time they applied to the trustees.
The payment must be a single gross lump sum of no more than $10,000 and no less than $1,000 (or a lesser amount if the member's benefits are less than $1,000). Only one payment is permitted in any 12-month period.
Alternatively, if the member has reached their preservation age plus 39 weeks, you need to be satisfied that the member:
- has been receiving relevant government income support payments for a cumulative period of 39 weeks since reaching their preservation age
- was not gainfully employed on a full-time or part-time basis at the time of applying to the trustees.
If you release benefits under these circumstances, there are no cashing restrictions.
Benefits may be released on specified compassionate grounds if all the following conditions are met:
- a member does not have the financial capacity to meet an expense
- release is allowable under the governing rules of your fund
- the Department of Human Services determines, in writing, that the release is permitted.
There are specific grounds for release and, once DHS has approved the release, the final decision to release the benefits lies with you and your fellow trustees. The amount of super that you can pay on compassionate grounds is limited to what is reasonably needed. It is paid as a lump sum.
Terminal medical condition
If a member has a terminal medical condition and two medical professionals certify that the condition is likely to result in the member’s death in the next 24 months, the balance of their super account may be paid as a tax-free lump sum benefit. There are no cashing restrictions.
Improper early access to your super is illegal. There are severe consequences for you and your fund if you access your super before you are legally entitled to do so. These include:
- disqualification of trustees
- the fund being made non-complying
- imposition of administrative penalties
Any money accessed illegally will also be included in the assessable income of the individual and taxed at the applicable marginal tax rate.
To cash preserved benefits or restricted non-preserved benefits, a member must satisfy one of the conditions of release – such as retiring after reaching their preservation age.