Accessing super for your retirement

Shane: Hello. My name is Shane Hancock, and I am the Head of Member Products, Guidance and Advice at AustralianSuper. And welcome to our podcast, The moments that count. Before we start, it's important to note that the information discussed in this podcast is general only and doesn't take into account your needs or personal objectives.

You should assess your own financial situation and needs. Today, this podcast is being recorded at our head office on the land of the Wurundjeri people of the Kulin Nation. I and AustralianSuper acknowledges the traditional custodians of country throughout Australia. We pay our respects to elders past and present, and extend that respect to all Aboriginal and Torres Strait Islander people.

Quite often, AustralianSuper members will ask questions that are funnelled through various channels and mostly those questions are relevant for many members, so we thought it'd be great if we could share some of those questions and answers through this podcast.

And today, I'm very happy to be joined by Peter Treseder, Education Manager at AustralianSuper. Peter has been educating members for over 20 years. Welcome, Peter and thanks for joining me!

Peter: Thanks for inviting me along, Shane.

Shane: So today we want to talk a bit about accessing your super. So can you tell us when someone can access their super?

Peter: Well, to access super, the technical term is a condition of release. Now, one of those is turning 65 and another is ceasing work after you've obtained your preservation age. And your preservation age depends on when you were born.

So there's a sliding scale. If you're born before the 1st of July, 1960, your preservation age is 55. So you passed it some years back. If you're born on the 1st of July in 1964 or later, your preservation age is 60.

So you haven't reached it yet. Those listening will think, well, what about in between? For each financial year, it increases by one year. So the '60-'61 financial year, preservation age is 56. The next financial year is 57, 58, 59. That takes you up to the end of June, 64.

Shane: So what does the preservation age mean in generality?

Peter: It means that's when your super is available to use, you can get your hands on it and do what you want with it. So there's two boxes you need to tick, that ceasing work and to have reached that preservation age.

So I might stop work because I can stop work whenever I want. If I stop work at 58 and my preservation age is 60, all I can do is smile and wave at my super for a couple of years.

Shane: So you have to be finished work and you have to meet your preservation age to access your super?

Peter: Yes.

Shane: So what about if I reach my preservation age, I retire and then I go back to work a year later and I'm still under 65? Do I have to give my super back?

Peter: No. That super is released to you. It becomes what's, in technical terms, non-preserved, which means you can keep on accessing that as quickly or as slowly as possible.

Your new employer is going to pay new contributions into a super account. You can't access those super contributions till you cease work with that employer because you've already reached a preservation age, but you've got to cease with that employer to get those contributions.

Shane: So when someone can access a super for retirement purposes, what can they do with the money?

Peter: Well, they can do whatever they want with it. They might spend it wisely, they might spend it recklessly. But you've got to realise, the superannuation system, that money is there to fund your retirement.

So you might want to look at how are you going to budget, what you're going to spend in retirement, what are your income sources? Because when you stop work, you're getting no income from labour. Your income is going to come from other sources, usually your super, savings, investments and maybe the government pension.

It's a matter of working out, well, what's my aim of income in retirement and where's that money going to come from? And hopefully you've got enough savings, super, whatever, and maybe the age pension will get you to the level of income you're after.

Shane: So if someone accesses their super through retirement preservation age, they can cash it out?

Peter: Yes.

Shane: Or what else could they do with it?

Peter: Oh, look, they could move it into an account based pension which is still in the superannuation world. So it sits in that concessionally taxed world of superannuation. The difference being, in an account based pension, there's like a tap on the side of your super account and you control that tap.

You can turn it on as hard as you want, the government requires you to take a minimum amount, but sometimes that's a better way of managing money in retirement, because all during your working life, you got a salary each week, fortnight, whatever, and you managed that.

And if you have an account-based pension, you're getting a similar income that you can set up to pay you monthly, fortnightly, once a year.

Shane: And you can still invest the money while you're in that super account as well. So you could actually be invested in a growth asset, a balanced fund, cash, whatever you want it to be whilst it's still in that environment.

Peter: Yeah, it's just like your superannuation account, you can choose how it's invested. And you said, I might choose different options, I might choose one option and I might draw out, let's say, 4%, but the option earns 6%. I've got more at the end of that first year than I started with.

Shane: And is there different tax arrangements for someone in an account-based pension versus when they're in their super or versus taking the money out?

Peter: Look, there's some slight differences. The main consistent one is if you're over age 60, what you take out of super is tax-free.

So it doesn't matter whether you're taking out as lump sums out of a super account or as an income stream out of an account based pension. If you're under 60, but you've reached your preservation age because you can't get it out until you've reached your preservation age.

If it's an income stream, the income is taxed at your marginal tax rate, but you get a 15% offset against that tax. So if my tax rate is $0.30 in the dollar, I'll effectively pay $0.15 in the dollar.

So one of the government's incentives they brought in a number of years ago was the incentive to leave your money in super till 60, because after 60, it's tax free.

Shane: Right. And so someone goes down that pathway of meeting a preservation age, rolling it over into an account-based pension. Is that money locked away or can they still access the super because they've reached preservation?

Peter: They can still access all that super. So, as I said, there's a tap at the side that may be given me $1,000 a week, a month, whatever.

I suddenly decide I need to have a holiday to Europe. I can put my hand in the top of the bucket and pull out a lump sum at any point. And again, I'm over 60. That lump sum is tax-free.

Shane: Yeah. And I think that's a really important point to make, because we do see many people here and many people who get concerned about rolling it into a pension because they think they're locking their money away again, which they've waited so many years to get access to.

So, important point there. You roll it over to an account-based pension, you get the income stream, but the cash is still available anytime you want. It's your money to access for your purposes.

Peter: Exactly. I meet so many members that say, oh, I'm going to retire and take my money out of super and put in the bank, because then I can go use my ATM card and get money out when I want. I say, well, you set an account based pension, you get the advantages of keeping it in a tax concessional world of superannuation.

The account-based pension will pay money into your bank account and you can still use your ATM card and get the money out.

Shane: So, Pete, we've talked about preservation age and retirement and the connection there. What are some other scenarios where people could access their super?

Peter: One is severe financial hardship and another is under compassionate grounds. Now, there's more details on the AustralianSuper website of how you can access that and also the ATO website of what the conditions are to access that.

So severe financial hardship is you're doing it tough and you need money, and there's rules around that. And compassionate grounds are often around a medical issue, treatment or maybe even I've got a partner that needs full-time care, or we got to put in ramps and safety bars in the bathroom around the house, compassionate grounds.

Shane: So if anyone's not sure and might feel like they're in some of those situations, then they can go to the AustralianSuper website or contact AustralianSuper or their super fund, who will be able to guide them through the different scenarios in which they might be able to access their super.

Peter: Oh, exactly. And in my role in education, I always say to people, if you don't know, ask. Even if you're expecting the answer no, still ask, because if you get the answer no, you haven't lost anything. But if the answer was going to be yes and you didn't ask the question, you've missed out.

Shane: Yeah, it's a good tip. So what are some other things, you've talked about tax before a minute ago, what are some other things that people might want to consider before they access their super early?

Peter: Well, it comes down to how long is that money going to last? I mean, I might be able to access my super at 60, but I might not be eligible for the age pension till I'm 67, so I've got to self-fund myself for those seven years, assuming I'm going to get some pension.

So the later you retire, the more you accumulate, and the period of retirement is going to be closer for you, so the money might last longer. So working out what your position is, are you ready, and we refer many members to our online calculator where you can say, look, I've got this much money now. What's it going to be worth? What's going to be in it when I plan to retire at age X?

And the calculator, with a number of assumptions about earning rates and tax, says, okay, you've got X now; in 20 years' time, you're going to have five times X. And five times X will give you an income of 30, 40, $50,000 for the rest of your life, if that's what you're aiming for, you're on target.

If you're aiming for something higher, you've got time to make some changes to your super to build up extra money to give you the retirement income that you're after.

Shane: And so, Pete, you touched earlier about government age pension and Centrelink, government benefits. Are there things that people need to consider relating to their government benefits when accessing super pre or post-retirement?

Peter: Look, it all depends. I mean, when you're applying for the age pension, there's a qualifying and as I said before, if you're born in 1957 or later, it's age 67. The government also have an income test and an asset test.

If your pension age, everything that you own except for your family home, is counted as an asset. And it's the way the government's sort of saying, well, if you've got substantial savings, they don't see as great a need for you to receive a full pension, so you might only get a part pension.

So it really comes down to working out, as I said before, what level of income you're after and what are those sources? We'd all like to retire early, but if you retire early, you haven't given your super time to grow and you may not be able to fund the lifestyle you're after. And the earlier you retire, the more money you're going to need, because you're life expectancy doesn't change just because you retire at age 55 rather than 65.

Shane: So it's important to have some form of a plan, whether it be speaking to a financial planner or at least having some of your own approach to planning through calculators, projections and otherwise.

Peter: Oh, exactly. We promote the use of a financial planner, whether they be an AustralianSuper financial planner or someone they can find through their own resources to get the numbers right. Because Australians have a wonderful three-word attitude towards their retirement planning. It's very Australian. You could probably guess three words, Shane.

Shane: She'll be right.

Peter: That's it. If you add mate at the end, it makes it more Australian, but it might not always be right. And getting some advice around what you're aiming for and where you are now can give people a lot of comfort.

"Okay, I'm retiring in ten years' time, I'm panicking." Well, a bit of a financial advice might see if you're tracking okay or if you'll have time to make some changes to get you to where you want to.

Shane: Thank you, Peter. I think you've given our audience some really good information into how to access your super. As mentioned previously, the information in this podcast is general advice only and doesn't take into consideration your needs or personal circumstances.

If you'd like guidance or advice, contact AustralianSuper or your financial adviser. Thanks again, Peter.

Peter: Nice. Thanks, Shane.

Shane: Thank you for joining us today. If you're an AustralianSuper member and you would like to join us to share your story or have a question or topic you would like us to cover, then click the link in our show notes to get in touch. If you've enjoyed this podcast, subscribe and share with your friends and family. See you next time.