Week 3 March 2019 - Super Smart (and Super Serious)

Getting money out of super

Your task this week:

• check your superannuation statement(s) to see what preservation categories your super savings are in

• have a look at who your beneficiaries are and what type of death benefit nomination you’ve made

• check whether you have insurance in your super fund and, if so, what type of cover do you have, how much are you insured for, and what are your premiums

• use the CIMER process to get an idea of whether you have enough insurance.

Preservation and conditions of release

Super is designed to be our retirement savings, and it is ‘preserved’ for this purpose - in other words, it has to stay in a superannuation account. If you look on your super statement, you’ll find a section with three headings that read:

• preserved

• restricted non-preserved

• unrestricted non-preserved.

If you started work before 1999, you might have money in each of those three sections, but if you started work after that time all of your super savings will be “preserved’ and must stay in a superannuation account until you meet a “condition of release”.

The main conditions of release are:

• retirement (there are two definitions depending on your age, but you must have at least reached your preservation age, which is 60 for most of us)

• reaching age 65 years of age (even if you haven't retired)

• death

• transition to retirement pensions

There are also special conditions of release that allow some or all of your super savings to be paid to you:

• permanent incapacity

• temporary incapacity

• severe financial hardship

• compassionate grounds

• terminal medical condition

You can find out more about each either on the Australian Taxation Office website here or the MoneySmart website here.

Here’s a great image from Unisuper that explains the difference between the three categories of preservation:

How preservation works

Basically if your money is in the green zone, you can take it out of super, usually as either a lump sum (one off) or regular income stream. You can read more about that at the MoneySmart website.

If you’re aged 60 or over, you can usually take your super savings out tax free, but if you’re younger then you’ll usually end up paying some tax (with some limited exceptions).

Death benefit nominations, beneficiaries and insurance

As mentioned above, death is a condition of release. While you won’t personally see your money, it will be paid to your beneficiaries who may include:

• a legal or de facto spouse (but not a former spouse)

• a child of any age

• someone who is financially dependent on you

• someone with whom you are in an interdependency relationship

• your legal personal representative (that means your estate, to be distributed according to your Will)

In most cases, your beneficiaries will receive the money from your superannuation account (plus any insurance) tax-free, but sometimes adult children and your estate may end up paying a bit of tax.

It’s really important to check who your beneficiaries are, the type of death benefit nomination you’ve made, and whether you have insurance attached to your fund. There are three types of insurance that you may find:

• death cover

• total and permanent disability insurance

• income protection (also known as salary continuance).

You can read more about insurance offered through super at the MoneySmart website.

This is important: please don’t make any changes to your super funds until you have ALL of the information you need, and that may also mean getting professional advice.

Please remember that all of the information provided in the Lunchtime Money Club is factual information and is not intended to be general or personal advice.