Differences between financial advisers and accountants or auditors over whether a client is retired are due to a misunderstanding of the definition of retirement, with a number of practitioners still unclear on this point, an SMSF technical specialist has noted.
Heffron SMSF technical and education services director Leigh Mansell said there was “a little spurt of misunderstanding going around the traps” regarding when a superannuation fund member was retired and the SMSF administrator was seeing this reflected in questions it was receiving.
“We’ve been fielding a few questions recently in terms of adviser clients saying to us ‘I think my clients have retired, but their accountant and auditor are saying they haven’t’ and we want to make sure we’re all on the same page and everybody understands what the definition of retirement actually means,” Mansell said during a recent adviser briefing.
She said the confusion arose because there were two definitions, but a requirement to meet only one of those to be considered retired.
“The first one we call permanent retirement and there’s three criteria the member needs to meet,” she said.
“They need to have met their preservation age, which used to be 55 for everybody, but is in a transition window where it’s been cranking up to 60, which it will be in the 2024/25 financial year for anybody born after 30 June 1964.
“In addition, have they ceased a paid job or paid employment arrangement, even self-employment at some point, and have they got an intention at that point in time to never again do 10 or more hours of paid work in the future.
“The other definition is where somebody has reached age 60 and after that there is a cessation event for employment.
“So they’ve either stopped a job or stopped being self-employed, but that event occurs after their 60th birthday and what they do in the future is irrelevant.”
To illustrate these definitions, she gave an example of a super fund member aged 59 who had reached their preservation age and had been working a number of jobs in the past, but had no intention to be employed for more than 10 hours a week in the future, as someone who would be considered as retired.
She noted the member would not meet the second definition as they were not old enough and while there was agreement they had met the age and intention requirements of the first definition, questions were raised about the ending of employment.
“What we’re hearing from advisers is they are having trouble convincing an accountant or auditor this person has retired because they can’t be retired because they haven’t ceased paid work after reaching preservation age,” she said.
“That’s not how it works. The way the law works is there’s no requirement to cease having a paid job after preservation age; it could have happened 20 to 30 years ago.
“It doesn’t need to be recently and it definitely doesn’t need to be after reaching preservation age.”