Understanding preserved and non-preserved benefits

What is the difference between preserved and non-preserved benefits? Can I access the non-preserved portion?

If you qualify under financial hardship, your super fund can release from $1000 to $10,000.

I am 56 years old and was recently made redundant. I was reviewing my super and it breaks my balance down into preserved and non-preserved benefits. What is the difference? Can I access the non-preserved portion and what are the tax consequences? As you are unemployed, you are allowed to access to up to $10,000 of your super savings in both this financial year and the next. The lump sum withdrawals are tax free.

This additional access to super is a temporary measure as a result of coronavirus. You apply to the ATO through the MyGov website. The ATO will then process the application and issue a determination to you and your super fund. The super fund will then pay you directly within five days of notice. Note there are ATO penalties for those who seek access to their super who do not meet the eligibility criteria.

Under normal conditions, access to a super lump sum is restricted or “preserved” until retirement. You are generally eligible to access super when you cease gainful employment after reaching preservation age, turn 65, suffer a permanent incapacity or terminal illness. You may be able to access a portion of your super if you are suffering financial hardship and meet the specified criteria.

These criteria are called “conditions of release”. Once you have satisfied one of these conditions, the preservation status of your benefits changes from “preserved” to “unrestricted non-preserved” and you are eligible to withdraw your benefits as a lump sum or as an income stream.

Preservation age will vary. If you were born after July 1, 1964, your preservation age is 60. If you were born between July 1, 1963 and June 30, 1964, preservation age is 59, between July 1, 1962 and June 30, 1963, age 58, and prior to this you have already attained preservation age. As you are aged 56, you have not attained preservation age.

If you made personal contributions to a company super fund before July 1999, these contributions are referred to as “restricted non-preserved” benefits. They become unrestricted once you cease employment with the employer they relate to, regardless of your age.

Your super fund reports the preservation status of your benefits in your annual benefits statement. It will categorise your balance under the following preservation categories: preserved, restricted non-preserved and unrestricted non-preserved benefits.

The tax treatment of any benefit will vary. With the exception of payments made under coronavirus government support, if you are accessing super under preservation age, the tax rate is 20 per cent plus the Medicare levy.

I am 42 and unemployed for six months. If I find myself still needing to access my super after I have withdrawn my second lump sum of $10,000 from super, am I able to access more?

As you haven’t reached your preservation age, there are limited circumstances that would allow early access to super under financial hardship beyond the initiatives announced by the government as a result of coronavirus.

In order to be granted early release on the basis of financial hardship, you would need to be able to provide written evidence that you have been on government income support for at least 26 consecutive weeks and in receipt of that income support at the time of application for early release. You also need to demonstrate that you are unable to meet reasonable and immediate living expenses.

If you qualify under financial hardship, your super fund can release from $1000 to $10,000.

Andrew Heaven is an AMP financial planner at WealthPartners Financial Solutions.

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