Jason Hurst, superannuation technical adviser for the Knowledge Shop, said in a recent webinar for Accurium that advisers need to be careful when clients pitch certain ideas solely to access their super funds.
Hurst used the example of Fred, an employee of a related trust who runs a business and works 40 hours a week. He decides to terminate himself as an employee and pays out his leave.
“On the surface, it looks like terminating an employment arrangement, but he still runs the business, comes to work 40 hours a week and does the same things as he was doing before the ‘termination’,” Hurst said.
“In this case, you would question whether he has really met a condition release. Self-employed arrangements can make it more difficult to judge whether employment has really ceased. The same goes for those working as sole traders.”
Hurst gave another example of a 60-year-old sole trader electrician who decided to stop providing electrical services and continue to operate a sole trader business mowing lawns or gardening.
“They are continuing to operate as a sole trader which would mean there is really no cessation of employment. Primary producers and farmers are also complicated regarding the condition of ceasing employment.”
“They tend to never retire in a lot of cases, or even if they’re scaling back, sometimes it’s difficult to show retirement for someone staying on the land. If they’re selling up and leaving the land, it’s pretty clear, but if they’re staying, they’re going to be doing some work. Then we may have to wait until 65 for them to have full access to their super.”
Hurst said some superannuation funds can be accessed in cases where the conditions of release have not been met by using transition to retirement strategies that would allow a member to start a non-commutable income stream once they reach the preservation age of 60.
“There are minimum pension requirements for TRIS and it works the same way as a retirement pension.”
“If a TRIS is started on 1 January, the member should be able to take around two per cent if they want to take as little as possible. A lot of people don’t realise that if someone does start a TRIS part way through the year, even late in the financial year, they can take up to 10 per cent out of that TRIS for that first year, even if it’s only run for a short period.”
He added that if the member needs a bit more than 10 per cent and they started a TRIS in May or June, they can take out 10 per cent in that first financial year and from 1 July can take out a further 10 per cent.
Jason,
We live in a country of 27 million people with about 1.5M on temprary visas – workers are in short supply. I recently visited Albury and a normal wait for a handyman to fix your Ikea furniture is about 4 weeks! A bircklayer – you have to wait for about 6 weeks and a painter about 8 to 10 weeks. I saw very few older (read as semi-retired with access to super) tradies working on construction sites.
There are countries which allow access to your super for purchasing a home or getting kids married before retirement age – we make them wait till they are 60 – which leaves about 20 – 25 years to spend what they have saved up for. Some working for others (employees) have to wait till they are 65 with life expectancy of 20.2 years to access their super.
Do you really want these 60 years not to fudge their retirement and start to simply work less than 10 hours per week to access their super – this will make labour shortages even worser.
This country has to solve the problem of enough gardners – before they make laws to stop your Fred from working after termination at age 60!
His super is his money after all…. He is 60 for godsake – how much do you think he can party…
Jason, I think this example does potentially demonstrate a COR has been satisfied: [i]Hurst gave another example of a 60-year-old electrician who leaves their job as an employee and triggers a condition of release but then decides to operate a sole trader business mowing lawns or gardening.[/i]
The 60-year old can meet limb 1 or 2 of the retirement definition. It looks like we had an employee cease an employment arrangement which is all that is required once over 60. The “permanent and intention to never work” requirement isn’t in play.