Important change for SMSF trustees to be aware | From 1st July 2015 Transitional preservation age rules come into force
As a SMSF trustee, it’s ultimately your responsibility to ensure the fund complies with the relevant rules.
One of the complications in choosing to run your own self-managed super fund is the need to ensure you stay up to date with changes in super law. This becomes even more complicated when the change is an old change and there has been no new legislation.
It’s very important for SMSF trustees to be aware of a change that took effect from 1st July 2015. This is a change that was made to legislation in 1998. For a long time, the discussion around superannuation has been that you cannot access your funds until you reach age 55 and retire. The introduction of a ‘transition to retirement pension’ in 2005 meant that you didn’t even have to retire, but instead just had to turn 55.
The problem with these discussions is that while they were correct at the time, they are not entirely accurate. Under the relevant super law, the trigger for accessing super is not written as ‘reaching age 55’, but rather as ‘attaining preservation age’.
Since 1998, when the definition of preservation age was introduced into super law, preservation age has been 55, because it was based on when a person was born.
If you were born before 1st July 1960, your preservation age is 55; however if you were born after this date, then your preservation age increases and may be any age between 55 and 60.
| Birth date range | Preservation age |
| Born between 1st July 1960 and 30th June 1961 | 56 |
| Born between 1st July 1961 and 30th June 1962 | 57 |
| Born between 1st July 1962 and 30th June 1963 | 58 |
| Born between 1st July 1963 and 30th June 1964 | 59 |
| Born after 1st July 1964 | 60 |
This is a significant issue for SMSF trustees to be aware of. Large super funds have been busily making system changes over the past year in anticipation of this impact and to ensure a person is denied access unless they meet the relevant preservation age. However for many SMSFs that are not operated and run through such complex systems, a significant risk exists. You run the risk of accidentally paying yourself (or another member of the fund) a benefit from the fund when you might not be eligible.
If you reached 55 before 1st July 2015, this is not an issue – you qualified based on your date of birth under the existing rules and the change in preservation age won’t affect you. But if you are turning 55 in the next year, this is important; because you may have planned for your future on the basis you could access your super.
This change in age for accessing super highlights one of the complexities that you need to be aware of if you are running your own fund. And these issues will often arise at 1st July each year. Other important considerations coming up for 1st July include:
- There are no changes to contribution caps from July 1, 2015. While this makes it easier to administer, it’s important not to be thinking they will have gone up by $5000 (for pre-tax contributions) or $30,000 (for after-tax contributions) just because they did this the year before.
- For lump-sum payments made from the super fund before age 60, you can pay up to $195,000 from the taxed portion of the fund, but the member does not need to pay personal tax on it. The $195,000 limit has increased by $10,000 from the current year – but you need to remember to reduce the higher limit by amounts previously paid out.
There are other rates and thresholds that have changed, so be sure to check these on the Australian Taxation Office’s website by searching for ‘key superannuation rates and thresholds’. The administrator of your SMSF should be aware of all of these changes, but remember that ultimately in a SMSF you have responsibility as a trustee.
Lex Goldsmith | Principal Edge Financial Services | Senior Advisor | August 2015
