When accessing superannuation benefits, one of the key matters to verify is the preservation status of members’ benefits. Generally, member benefits are preserved, especially for those who aged under 65 years with their accounts are still in accumulation or transitional to retirement. Preserved benefits mean that the member can only access the funds if a condition of release is met and no cashing restriction is imposed.
On the other hand, the member benefits may also contain restricted non-preserved and unrestricted non-preserved benefits. When the member meets the condition of release with Nil cashing restriction, his/her preserved benefits then become unrestricted non-preserved. In some instances, the member benefits may also contain an unrestricted non-preserved component if the fund received employer termination payments before 1 July 2004.
The second benefit category, i.e. restricted non-preserved, generally comes from employment related contributions (other than employer contributions) made before 1 July 1999. These benefits can only be paid out upon satisfying a “condition of release” where an employee terminates their employment.
Superannuation Industry (Supervision) Regulation (‘SISR’) stipulates the order of allocating negative investment returns where a member’s account has more than one preservation components.
Reg. 6.16A of SISR requires the returns to be debited in the following order:
|Allocation order||Negative investment return - type of benefit|
On the other hand, while withdrawing benefits from a self-managed superannuation fund, it is the cashing order requirements in Reg. 6.22A (2) of SISR that must be applied. The trustees must prioritise benefits in the following order:
|Allocation order||Cashing restriction - type of benefit|
Unlike tax components, where members must follow proportionate rules, a member may choose and split the preservation components into separate pension accounts. This provides a greater flexibility to members who want to commence transitional to retirement pensions.