Drawing on super doesn’t necessarily mean stopping work
• Super, retirement,
A common misconception among clients approaching retirement is that once they start drawing on their super, they can only earn a limited amount from part-time work. For self-funded retirees, that’s generally incorrect. The issue is often confused with Age Pension income testing, transition-to-retirement rules or the conditions that allow a person to access their super in the first place.
The key point is that drawing on super does not, by itself, create a cap on employment income. For many clients, the more important question is whether they’ve met a valid condition of release that allows them to access their super benefits.
Common conditions of release include:
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reaching preservation age and retiring;
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turning 65; or
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certain other circumstances, such as permanent incapacity.
Once an individual turns 65, they can generally access their super regardless of their work status. This means it’s entirely possible for a person aged 65 or over to draw a lump sum or pension from super while continuing to work part-time, casually or even full-time.
Retirement before age 65
The position becomes more nuanced for clients aged between 60 and 65. One of the more misunderstood rules is the superannuation definition of retirement. For superannuation purposes, a person aged 60 or over may satisfy the retirement condition of release if they cease an arrangement of gainful employment after turning 60. Clients are often surprised that the retirement definition can operate differently from the ordinary meaning of “retirement”.
Where a person’s not yet retired, a transition-to-retirement income stream may also be available, subject to the relevant restrictions.
Tax treatment
The tax treatment of super is often one of the reasons people are interested in working during retirement. For most people aged 60 and over:
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benefits paid from a taxed super fund are generally tax-free; and
- employment income continues to be taxed under the ordinary income tax rules.
This means many retirees receive part of their overall income from tax-free super benefits while continuing to earn taxable employment income. Depending on their circumstances, some clients may also qualify for offsets such as the seniors and pensioners tax offset.
A common source of confusion
Clients often mix together several separate concepts:
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superannuation conditions of release;
- Age Pension income testing;
- employment income;
- superannuation taxation; and
- transition-to-retirement arrangements.
A person may be able to continue earning employment income while receiving super benefits, yet still be affected by completely separate rules if they are receiving the Age Pension or another means-tested payment.
The result is that there is rarely a single answer to the question, “how much can I earn in retirement?” Instead, the answer depends on which set of rules is being considered.
The question isn’t always how much you earn
This topic provides a good opportunity to remind clients that earning income after retirement is often possible without affecting their access to super. However, before accessing super or restructuring employment arrangements, it’s worth confirming:
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whether a condition of release has been met;
- whether any transition-to-retirement rules apply;
- the tax treatment of the relevant super benefits; and
- whether any government payments are affected.
Getting those questions right early can help avoid costly mistakes and unintended consequences later.