Member accounts – definitions
This is the default account type in Mclowd. An accumulation account is automatically created when a member is set up.
Accumulation Accounts are sometimes referred to as ‘Growth Phase Accounts’, because they operate to grow a member’s savings in preparation for retirement. Members are permitted to make contributions to Accumulation Accounts, and may benefit from tax concessions for doing so. A member’s employer may be required, by law, to contribute on behalf of the member – typically a percentage of the employee’s wage or salary. Members can also elect to ‘salary sacrifice’ – giving up an increase in salary in return for a larger contribution to their superannuation account.
Superannuation Fund Trustees will usually invest the money held in member accounts to achieve growth through earnings (dividends, interest, distribution, etc.) and capital gain.
Transition to Retirement Account
If the Fund Trust Deed permits, a member who has reached preservation age may be able to reduce working hours without reducing their income. This is achieved by topping up a part-time income with a regular ‘income stream’ from super savings.
Under these rules, members only access super benefits as a ‘non-commutable’ income stream. A non-commutable income stream is one that cannot be converted into a lump sum. Benefits must be taken as regular pension payments.
Employers still need to make compulsory super guarantee contributions for all their eligible employees, including those in transition to retirement.
A transition to retirement income stream must be an account-based pension. The amount paid to the recipient each year must meet a specified minimum and must not exceed 10% of the account balance on the commencement of a TRIS for the year it starts or on 1 July for each subsequent year.
A member who meets relevant legal requirements can elect to move their superannuation balance, or part thereof, from growth phase to ‘payment phase’. Members must meet Conditions of Release to make the transition to a Pension Account.
Funds are transferred from the Accumulation Account to an Allocated Pension Account, and regular payments can then be made to the member to support their lifestyle in retirement. The minimum percentage of the total balance that must be paid to the member each year is determined by legislation, but members can elect to draw more either by increasing their pension or through lump sum commutations.
The assets continue to be held by the Fund (although some members may hold segregated assets as well) and hopefully to grow through regular income receipts and capital gain.
If a member who is 60 or over gives up one employment arrangement but continues in another employment relationship, they may cash all benefits accumulated up to that time, cash only part of their benefits and leave some to accumulate further, or continue to hold all benefits in an accumulation account.
A member who has reached age 65 may cash their benefits at any time. There are no cashing restrictions, which mean the benefits can be paid as an income stream (from a pension account) or as a lump sum.
Funds in member accounts may be classified as ‘Preserved’, in which case limits apply to accessing these funds.
Preservation is a restriction on super which prevents a member from accessing superannuation benefits until he or she reaches a certain age and retires, or until he or she satisfies another condition of release. Preserved benefits include all contributions and earnings after 30 June 1999.
The most common way of accessing super benefits means reaching your preservation age AND retiring. Note that you do not have to access your super benefits when you reach your preservation age, and if you want to access your benefits, then you must have also retired.
Your preservation age is based on your date of birth, and ranges from 55 to 60 years, with anyone born after June 1964, having a preservation age of 60 years. Anyone born before July 1960, has a preservation age of 55 years. If you were born before 1 July 1964 and after June 1960, your preservation age is as shown in the table below.
In special circumstances, you can access super benefits without retiring, or without reaching age, but those circumstances are very specific, for example, severe financial hardship, permanent incapacity and severe mortgage stress.