In Australia, superannuation (or retirement savings) are regulated by a number of different rules. One of the most important rules is the preservation age. This is the age at which you are able to access your retirement savings and start receiving an income stream from your super fund.
The preservation age depends on when you were born, but for most people it is between 55 and 60. If you withdraw your retirement savings before you reach the preservation age, you may be subject to taxes and other penalties.
Another important rule relates to early release of retirement savings. In some cases, you may be able to access your retirement savings before you reach the preservation age. However, this is generally only possible if you meet certain conditions, such as severe financial hardship or permanent incapacity.
Withdrawing retirement savings early can also have tax consequences, so it is important to get advice from a qualified accountant before doing so.
Finally, it is worth noting that retirement savings can be taken as a lump sum or as an income stream. Taking a lump sum means that you receive all of your retirement savings in one payment, whereas an income stream is paid out over time (usually monthly or yearly).
What are the things to consider before you make a withdrawal?
You should know that you must meet certain conditions in order to withdraw money from your superannuation. In some cases, withdrawals may be subject to tax.
What conditions are there for release?
A condition of release is required before you can access your superannuation. You must notify the superannuation trustee in writing. Your withdrawal request may also need to be supported with evidence or a statement that you have fulfilled a condition. Below are some common conditions for release. You can ask your adviser for information about other conditions of release.
Retirement
Once you have reached your preservation-age and are ready to retire permanently (i.e. You will be released if you do not plan to work more than 10 hours per week.)
Persons will be eligible to access your superannuation if you quit your job after age 60. You must notify your trustee immediately if you cease a gainful employment arrangement.
Reaching the age of 65
Your superannuation can be fully accessed once you turn 65, even if your job is still active.
Being diagnosed with a terminal illness
You may be eligible for all your super benefits if you have a terminal condition. If:
- You have been certified by two registered medical practitioners that your illness is unlikely to endanger your life within 24 months of the date of the certificate.
- At least one registered medical practitioner must be a specialist in the area of your injury or illness.
First Home Super Saver Scheme
Under the First Home Super Saver Scheme, you can withdraw eligible contributions for your first home purchase.
Compassionate grounds
You may be eligible to receive some superannuation benefits to help you pay for certain expenses if you don’t have the finances to cover them. These are considered compassionate grounds:
- You or your dependents may be eligible for medical treatment and transfer.
- To prevent your home from being foreclosed on, you can make a payment to your mortgage.
- You can modify your home and vehicle or buy disability aids for yourself or someone you care about because of a severe disability.
- Funeral, burial or death expenses of a dependent.
What superannuation components are there?
These are the components of your superannuation money:
- Tax-free component
- Taxable component (taxed)
- Taxable component (untaxed)
The underlying source of funds is what determines the components.
The tax-free component will include personal contributions that you have not claimed as a tax deduction. This includes spouse contributions, government co contribution and downsizer contributions. It also includes amounts that you have contributed under the small business CGT rules.
The taxable component includes employer contributions, personal deductibles, insurance payouts, and any earnings from the fund. If the fund is unfunded (ie, contributions tax was not deducted), or you have received an income from insurance, an untaxed component is included.
Every withdrawal is divided proportionally between the components. Tax-free components can be withdrawn without tax. On the taxable components, however, lump sum tax will be payable.
What are the rates of lump sum tax?
If you are younger than 60 years old or your superannuation funds are unfunded, lump sum taxation could be applicable. You should identify any lump sums that have been withdrawn previously, as they may impact the tax due to be paid now.
The tax-free component is exempt from tax. Below is a table showing the lump sum tax rates on the taxable component for 2022/23.
| Age | Taxable (element taxed) | Taxable (element untaxed) |
| Under preservation age | 22% on the whole amount | 32% tax on first $1.650 million then 45% on the remaining balance |
| Between the preservation age And the age of 60 | No tax on the first $235,000 then the lower of MTR an 17% on the remaining balance | 17% tax on first $235,000, then 33% on amount above $230,000 to $1.705 million, and then 45% on the remaining balance |
| Aged 60+ | No tax payable | 17% tax on first $1.705 million then 45% on remaining balance |
In Conclusion
There are certain circumstances in which you can withdraw your superannuation, but it is worth thinking long and hard about how this will affect your super and retirement. If you are still unsure about the procedure to withdraw your tax don’t hesitate to contact a financial advisor to guide you through this process.
