Easier to take money out
According to the Australian Taxation Office (ATO), reaching the age of 65 is one of the conditions of release for your super, and this can mean significant changes to how your super works. Because super is meant to fund your retirement, you are prevented from accessing it until you meet a condition of release, like reaching the preservation age and retiring. However, because turning 65 is in itself a condition of release, there is no need for you to retire after this age if you wish to access part or all of your super benefits at any time. Further, since you’re accessing your super after reaching the age of 60, the ATO indicates that withdrawals from your super are generally tax free.
Harder to put money in
However, there is a trade-off of turning 65. While you can now access your super, it can be harder to put money into your account. Anyone aged 65 or older has to satisfy what’s known as the work test if they want to continue making super contributions. The work test, as outlined by the ATO, requires you to have worked for at least 40 hours in a continuous 30-day period during the financial year you wish to contribute.
If you do satisfy the work test and make a contribution, the standard rules regarding concessional and non-concessional contributions still apply, with a few exceptions. You can’t use the non-concessional ‘bring forward rule’ to make a larger contribution in a single financial year, and you are ineligible to make voluntary super contributions if you are 75 or older. However, no matter your age you will still receive mandatory super contributions if you continue to be employed and earn more than $450 a month.
From 1 July 2018, special rules will apply for people aged 65 and over who sell their home and put some or all of the sale proceeds towards super; each person can use these provisions to contribute up to $300,000 into their super account without the need to satisfy a work test. These ‘downsizer’ contributions do not count towards either the concessional or non-concessional contribution caps. You can find out more about them here.
Different tax implications
While you are not required to start using your super benefits until you want to, if you do start accessing them be aware there are different tax implications depending on how you choose to do so. You can find out details about the tax treatment of each option on the ATO and MoneySmart websites.
As detailed by the ATO, the earnings your super investments make are generally still taxed if your account is in accumulation phase but aren’t if it is in pension (retirement) phase. The accumulation phase is what your super is in while you are working and building your account, you are accumulating capital. The pension phase is what happens if you start to draw an income from you super, through an account-based pension, for example. You should also note the transition to retirement pension plan doesn’t typically count as being in the pension phase. Depending on your situation, you may have one superannuation account in accumulation phase, and another in pension phase, so it’s important to know how your super is set up and how it is being taxed.
These are of course the general changes to the super system for over 65s, and your exact details may differ. Make sure to seek independent financial advice for your own specific situation.