The Preservation Age Change: What It Means for Your Retirement Planning

As of July 1, 2024, an important change has taken effect in Australia's superannuation system—the preservation age is now 60 for all Australians who haven't already reached it previously under the old gradual increase schedule.

This change marks the completion of a phased increase that began years ago, and it has significant implications for retirement planning, affecting when and how Australians can access their superannuation savings. Understanding this change is crucial for making informed decisions about your financial future.

In this article, we'll explore what preservation age means, how the recent change affects you, and what steps you might consider taking in response to ensure your retirement planning remains on track.

Understanding Preservation Age

Preservation age is the minimum age at which you can access your superannuation benefits if you meet certain conditions of release. It's designed to ensure that superannuation savings are used for their intended purpose—supporting Australians in retirement.

Prior to the recent change, preservation age varied depending on when you were born, under a phased schedule:

Previous Preservation Age Schedule

1. Before 1 July, 1960: 55
2. 1 July, 1960 – 30 June, 1961: 56
3. 1 July, 1961 – 30 June, 1962: 57
4. 1 July, 1962 – 30 June, 1963: 58
5. 1 July, 1963 – 30 June, 1964: 59
6. 1 July, 1964 onwards: 60

The July 1, 2024 Change: What's New

As of July 1, 2024, the preservation age is now standardized at 60 for all Australians who haven't already reached their preservation age. This marks the completion of the phased increase that began in 2015.

Key Points About the Change

1. If you were born before July 1, 1964, and had already reached your preservation age under the old schedule, you are not affected
2. For anyone born on or after July 1, 1964, the preservation age is 60
3. This change does not affect other access conditions, such as retirement or reaching age 65
4. The change is now permanent, with no further scheduled increases to preservation age

How Preservation Age Affects Super Access

Reaching your preservation age is just one of several conditions that may allow you to access your superannuation. Here's how preservation age affects your options:

At Preservation Age

Upon reaching preservation age, you may access your super if you:

1. Retire permanently
2. Start a transition-to-retirement (TTR) income stream
3. Face severe financial hardship or qualify for compassionate grounds

Other Access Conditions

Regardless of preservation age, you can access super if you:

1. Reach age 65 (no other conditions apply)
2. Become permanently incapacitated
3. Are diagnosed with a terminal medical condition
4. Qualify for the First Home Super Saver Scheme

Impact on Retirement Planning Timelines

For those born on or after July 1, 1964, who may have been planning based on previous preservation age schedules, this change means you'll need to wait until you turn 60 before accessing your super (provided you meet a condition of release).

This 5-year increase from the original preservation age of 55 significantly impacts retirement planning timelines:

Who's Most Affected?

Those most affected by this change include:

1. Australians planning early retirement: If you were counting on accessing your super before age 60, you'll need to adjust your retirement timeline or explore alternative funding sources for the gap period.
2. People in physically demanding occupations: Those in trades or other physically demanding jobs who may need to transition to less demanding work before traditional retirement age might face challenges.
3. Those with retirement transition plans: If you were planning a gradual transition to retirement using a TTR strategy before age 60, you'll need to revise these plans.

Preservation Age and Access Conditions

It's important to understand that reaching preservation age doesn't automatically grant access to your superannuation. You must also meet a condition of release, such as:

1. Retirement: You've reached preservation age and have retired (ceased an arrangement of gainful employment) with no intention to be gainfully employed for more than 10 hours per week.
2. Transition to Retirement: You've reached preservation age but continue working. This allows access to some of your super through a TTR income stream while still working.
3. Reaching Age 65: Upon turning 65, you can access your super regardless of your work status—this is an automatic condition of release.

Strategies for Adapting to the Change

If you're affected by this preservation age change, consider these strategies:

Planning Adjustments

1. Review your retirement timeline: Reconsider your planned retirement age and adjust your financial goals accordingly.
2. Build non-super savings: If you plan to retire before 60, focus on building savings outside superannuation to fund the gap years.
3. Maximize contributions: Consider making additional contributions to your super to compensate for the delayed access.
4. Explore transition options: Look into options for reducing work hours or transitioning to less demanding roles as you approach retirement.
5. Seek professional advice: Consult with a financial advisor to develop a personalized strategy that accounts for this change.

Conclusion

The standardization of the preservation age to 60 represents a significant change in Australia's superannuation system. While it may require adjustments to your retirement planning, understanding the implications and exploring available strategies can help you navigate this change effectively.

Remember that reaching preservation age is just one factor in accessing your superannuation—you must also meet a condition of release. Planning ahead and considering how this change affects your specific circumstances is key to maintaining a secure financial future.

For those affected by the change, taking action now to adjust your retirement strategy can help ensure you remain on track to achieve your long-term financial goals, despite the shift in timeline.

Key Takeaways

1. The preservation age is now standardized at 60 for Australians born on or after July 1, 1964
2. This change is part of a planned transition that began in 2015
3. Reaching preservation age doesn't automatically grant access to your super—you must also meet a condition of release
4. Planning strategies include building non-super savings, adjusting retirement timelines, and seeking professional advice
5. Age 65 remains an automatic condition of release, regardless of other factors