Finance Your Budget Ask the Expert: Can I pick up work if I run out of money during retirement?

Ask the Expert: Can I pick up work if I run out of money during retirement?

Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND
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Question: I have a super account that I am unable to roll into my main account unless I retire (military super). Can I retire and then go back to contracting if I need to work (not enough super)? In this case, how do I prove retirement in order to access the super in this account?

Superannuation has many rules in relation to when you are allowed to contribute to super, and when you are able to access super.

Some older corporate or government super funds also have rules regarding when you can leave their particular fund.

The definition of retirement, in a superannuation context, means you have met one of the following:

  • You have attained age 65
  • You have terminated an employment contract after you have reached age 60
  • You have terminated an employment contract after you have reached your preservation age, which would be between 55 and 60 depending on your date of birth, and do not intend to work more than 10 hours a week in the future.

How do you prove it?

Well, reaching 65 is pretty straight forward. For the other two definitions, the superannuation trustee will normally ask you to sign a declaration to confirm that what you are stating is true.

With the last definition, the key word is ‘intend’.

If you do not intend to work more than 10 hours per week at the time of signing the declaration, but your situation subsequently changes and you do end up going back to work, this is generally not a problem.

On the other hand, if you sign the declaration while knowingly making an untrue statement, and are subsequently audited, you could face fines and other penalties.

Question: I am entirely funded by my superannuation income stream payment, which is much more than I need to live on. The excess payment accumulates in a bank account and thus earns very little interest.

I would like to transfer some of the money in the income stream account to an accumulation account to reduce the pension payment and earn a better return on the money held in the accumulation account.

Then later, when the present income stream runs down, begin a new income stream account from the money in the accumulation account.

I understand that accumulation account earnings will attract tax of 15 per cent while earnings in my income stream are tax free (over 60).

My transfer cap is already just over the $1.6 million limit. Is this strategy possible, or will I be unable to do this because of the cap limit?

Answer: Firstly, as you have indicated, because of the ‘Transfer Balance Cap’, you can only transfer a maximum of $1.6 million into a super income stream (pension).

The Transfer Balance Cap works on a credit and debit type system, with transfers/rollovers into a super income stream counted as credits, and transfers back to accumulation counted as debits.

Lump sum withdrawals from your super income stream would also be classified as debits, but regular income payments and investment earnings (positive or negative) are not counted in the credit/debit system.

If earnings exceed pension payments, it is possible for you to have a balance in excess of $1.6 million in a super income stream but because these are not counted as credits or debits that is acceptable under the Transfer Balance Cap system.

As a side note, the ATO has confirmed that the Transfer Balance Cap has been indexed to $1.7 million for the 2021-22 financial year.

However, if you have already fully utilised your Transfer Balance Cap of $1.6 million then you cannot benefit from this indexation, even if you rolled back some funds into the accumulation phase prior to this date.

The strategy you have outlined – transferring money from your super income stream back to the accumulation phase of super – is achievable and would meet your stated objectives, i.e. result in lower income payments. This is because it would create a ‘debit’, which would then allow you to transfer the funds back into a pension at a later time.

However, as you have pointed out, earnings within the super accumulation phase are taxed at 15 per cent, as opposed to nil in the pension phase.

Some additional strategies to consider would be to use the funds building up in your bank account to invest in other investments outside of super, such as direct shares, managed funds, or Exchange Traded Funds (ETFs).

Depending on your circumstances and marginal tax rate, this could be more beneficial from a tax position than leaving money in the accumulation phase of super.

If you have any large expenses coming up, drawing a lump sum from your super income stream would produce a ‘debit’ and create additional room under your Transfer Balance Cap.

The Transfer Balance Cap can be very complex, so I would suggest obtaining personalised advice.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings