Making a retirement U-turn

SUMMARY: Can you return to work after “retiring” and starting a super pension? Of course, but there are some rules to know.

You’ve hit retirement and you’ve started a superannuation pension. And everything in the after-work life was going fine. For a while.

Then boredom set in. Or your marriage broke down, leaving you with a smaller-than-required asset pool. Or we had another asset-price implosion (like the GFC) and the value of your super fell dramatically.

Perhaps you realised that you will actually need more money than you currently have in your super. Maybe you realised you enjoyed working more than you enjoy retirement.

Or you made a mistake in retiring in the first place.

Can you go back to work?

There is plenty of confusion around this issue.

The good news is that you can return to work after starting a super pension. But there are things that you need to keep in mind when you do.

And in some cases, it doesn’t require retirement, but simply changing jobs.

Isn’t retirement final?

No. While in theory it generally should be, it simply can’t be completely final. No government can ever tell you that once you declare that you’ve retired, that you’re never, ever, allowed to return to work.

In most cases, this is the sentiment that sits behind the rules of accessing your superannuation.

Your “intention” is what’s important. That is, generally, it was your intention to retire, or never to work more than 10 hours a week again.

People are allowed to change their minds.

Accessing your super

You can only access your super once you have met a condition of release. There are about 13 conditions of release, but the main ones for today are:

1. Turning 65.
2. Turning 60 and retiring (or ending an employment arrangement)
3. Hitting your preservation age and retiring.

Turning 65

Turning 65 is the ultimate condition of release for superannuation. Once you turn 65, your entire superannuation balance becomes “unrestricted non-preserved” and you are able to access the entire amount.

You don’t even need to draw it down via pension, if you don’t want to. You can withdraw the lot. In most cases, pulling it all out of super won’t make sense, because of the higher taxes you will likely pay outside of super, but you are able to do this.

If you want to return to work post-65, there is nothing to stop you doing so, while drawing a pension from your super fund.

You do need to be mindful of getting money back in to super, however. If you want to put any money back in to super, you need to meet the “work test”, which is having worked 40 hours within a 30-day stretch, during a financial year. And this would need to be done every financial year.

Turning 60 and retiring (or ending an employment arrangement)

There are two ways of hitting a condition of release after you’ve turned 60.

The first is to retire. Retire fully (or decide that you will not work more than 10 hours a week again) and you’re right to go.

As in the examples above, if you subsequently decide that you can’t afford to retire, or retirement isn’t for you, no government can stop you returning to work.

Even if you return to work a few months after your retirement, if your original intention to retire was genuine (and accepted by the trustees), then returning to work won’t impact your tax-free pension.

The second is to have an arrangement under which you are gainfully employed come to an end, after turning 60.

This can come from resigning, or being sacked or retrenched. But it can also mean changing jobs (due to moving interstate, getting a pay rise, or whatever).

Under both arrangements, from the superannuation perspective, the trustee of the super fund needs to be satisfied that the condition of release has been met.

In most cases, this will involve writing to the trustee and informing them of the condition of release has been met. Obviously, this should be less of an issue with your own self-managed super fund. But there might be a few forms, or hoops to jump through, with trustees of funds regulated by the Australian Prudential Regulation Authority (APRA-regulated funds).

Note: This actually becomes more important for those who have met a condition of release in previous years, because of the changes made to transition-to-retirement income streams made on 1 July.

But once the trustee has accepted that you have met a condition of release – either to start an ABP, or to access benefits – then there is nothing to stop you returning to work.

I’ve spoken to APRA-regulated funds about this. And they have said that they are able to backdate the point at which the condition of release was met, particularly with regard to switching an TTR pension to an account-based pension (ABP).

For example, if you are 64 years old now, who two years ago had changed jobs, then you could apply to the trustees of the fund to note that the condition of release was achieved at age 62. They might ask for proof, such as a resignation or termination letter.

This condition of release is largely about hitting that change to “unrestricted, non-preserved” (UNP). Once super has been made UNP, there is no restriction on cashing. And no restriction on returning to work.

But you need to be aware that the power to make super monies UNP is with the trustees. And to discharge their duties, they need to be confident that you have hit a condition of release.

If they smell something fishy – someone who might be trying to fake their intentions – they are entitled to deny requests.

Reaching preservation age

The earliest age at which you can access your super is known as your “preservation age”. This is determined by the date of your birth, as in the following table.

Hitting preservation age comes with a “limited cashing restriction”. It is between reaching preservation age and turning 60 that there are some complications.

(If you are between preservation and age 60 and still working, then you are limited to taking a transition-to-retirement pension. And see below.)

If you are between preservation age and age 60, then you would need to permanently retire and have the super fund’s trustees accept that you never again intend to work more than 10 hours a week.

This gives you UNP status for your super funds. However, there can be tax consequences for withdrawing from super from the taxable element of your retirement savings. This includes both tax to be paid on lump sums and income streams. And is a topic for another day.

The near-death of TTR

Transition-to-retirement schemes changed forever on 1 July 2017. While successive governments have whittled away at them for years, slowly making them less effective, the most recent changes really reduced the number of people they would be effective for.

The change was that TTR pensions are going to be taxed for the first time. They are essentially not considered pensions any longer. They will pay tax on earnings and gains, just as if they were still in accumulation, at the rate of 15%.

*****

The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is managing director of Bruce Brammall Financial and is both a licensed financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au . Bruce’s new book, Mortgages Made Easy, is available now.