One of the key features of superannuation is that your money is held in a trust structure. This means a trustee is responsible for looking after your money and cannot release it to you until certain conditions are met. This is the same as any trust arrangement – for instance, a trustee may look after inherited money for a child until they reach age 18. With super, the objective is to hold the money until you retire.
Preservation for your future
In superannuation terminology, your money is preserved. Most commonly, the money is held in the trust until you have permanently retired after reaching your preservation age as per the table below. Permanently retired means you have no intention of working for more than 10 hours a week – though you could change your mind afterwards.
If you have reached your preservation age but have not retired, you may be able to access your super as a pension income stream – but not as a lump sum. This is referred to as “transition to retirement”.
There are other circumstances when you can access your super in either a lump sum or a pension form – for instance,
When you reach age 65, whether or not you are working.
If you are totally and permanently disabled or have been diagnosed with a terminal medical condition – in general terms this means you will never be able to work again.
You may also be able to access some of your super (as an income stream) if you are temporarily unable to work due to a medical condition.
When you die your super will usually be paid to your dependants or your estate.
The rules also recognise that access to super may be a last resort for people in dire need. You can access some of your super if you are suffering severe financial hardship or on “compassionate grounds”. Specific details can be found on the Australian Tax Office website www.ato.gov.au.
Some people see their super as a “pot of gold” and a solution to their immediate money problems, but be warned, the ATO imposes harsh penalties on people who attempt to access their super illegally.
When you play by the rules, super is the best tax-effective tool available for most people. For more information about this, please contact your licensed financial adviser.