Preservation age is increasing: do you know what age your clients can access their superannuation? | Accurium

From 1 July 2015, the age at which a person can access their superannuation is increasing. Preservation age is the minimum age that a member must reach before they can access their preserved superannuation benefits without satisfying another condition of release. For example, in an SMSF it is common to see members employing a transition to retirement (TTR) strategy as they approach retirement. In order to commence a TTR the member must have reached their preservation age.

Prior to 1 July 2015 preservation age was 55-years-old. Therefore, persons born before 1 July 1960 can access their superannuation benefits from age 55. However over the next ten years the preservation age is legislated to increase from 55-years-old to 60-years-old. The legislated rise in the preservation age comes into effect from 1 July 2015, based on the member’s date of birth.

The increase in preservation age is not a new law, with the changes announced in the 1997-98 budget. However since preservation age has been static at age 55 for a number of years this increase may catch some people by surprise. It is important that practitioners servicing SMSF trustees are aware of the age at which superannuation can be accessed.  Accidentally paying benefits to a member who is not eligible may breach the payment rules and could see trustees face significant penalties.

Table 1: Preservation age based on date of birth:

Date of Birth Preservation age Financial year will reach preservation age
Before 1 July 1960 55 already attained
1 July 1960 – 30 June 1961 56 2016-17
1 July 1961 – 30 June 1962 57 2018-19
1 July 1962 – 30 June 1963 58 2020-21
1 July 1963 – 30 June 1964 59 2022-23
After 30 June 1964 60 1 July 2024 onwards when turn 60

It may be a good idea for members to review their retirement plans to ensure that they know their preservation age. The increasing preservation age means that members (for a given retirement age) may have fewer years to employ a TTR strategy to maximise their tax free benefits. Those born after 30 June 1964 must now wait until 60-years-old to be eligible to access their superannuation.

A member who turns 55-years-old this financial year cannot start a TTR pension or access their superannuation during 2015-16.

Consider SMSF members, James and Sophie. James was born on 1 February 1960 and Sophie was born on 15 July 1960. On 1 February 2015 James turned 55-years-old and decided to commence a TTR pension as he had attained preservation age. On 15 September 2015 Sophie turns 55-years-old and would like to commence a TTR pension as well. However, based on Table 1, the preservation age for Sophie is actually age 56, not age 55. Sophie will need to wait until 15 September 2016 when she turns 56 to become eligible to commence a TTR pension.

In order to avoid penalties associated with breaching the access to superannuation rules, where you have a client aged 55-years-old looking to access superannuation this year, remember to check their preservation age. If they turned 55-years-old on or after 1 July they will not be eligible to access their superannuation until next financial year.

Tags: Retirement, Transition to retirement TTR

The information in this document is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances.  While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.