Preservation Components in Super

When looking at your annual statement from your superannuation fund, have you ever wondered why your member balance shows three preservation components? Probably not, which is fair. Only those nerds, your accountant and financial advisers pay attention to that stuff. Should you pay closer attention to this in the future? This blog hopes to answer this question.

Why Preservation?
These components are important to understand how and when funds can be accessed from your super fund to comply with all the legislative changes over the years since super was first introduced formally by Government in 1986 (3% employer super guarantee) and then eventually enshrined in law in 1992. To manage all the changes over these years, plus the incoming legislation, July 1999 was the time when this was formalised and the three preservation categories were set. The preservation categories establish when contributions and investment earnings of your super fund can be accessed via a condition of release.

The Categories:

Preserved Benefits:
These benefits are made up of all contributions (non-concessional and concessional) that are received by your superannuation fund from 1 July 1999, and includes all investment earnings. These funds can only be accessed by a member once a condition of release occurs (e.g., reaching age 65).

Restricted non-preserved benefits:
These are typically undeducted contributions made before 1 July 1999 plus all earnings of those contributions received before this date. These funds can be accessed on meeting a condition of release including when the member leaves on termination of gainful employment from an employer who had at any time contributed to that fund for the member.

Unrestricted non-preserved benefits:
These benefits have already met a condition of release, however, have not yet been paid out and remain in the superannuation system and can be accessed at the member’s discretion. 

Why is this important?
We believe that this is important to pay attention to so that opportunities are not missed to maximise your financial situation. As an example, we helped a client access $55,000 from his un-restricted non-preserved benefits in super as a Lump Sum payment to maximise concessional contributions for him and his spouse, saving approximately $16,000 in personal tax. We did this because there were insufficient personal funds available to do this, and would have otherwise had to wait until the client turned 60 before accessing his super tax-free personally under a transition to retirement income stream.

What Next?
Whilst the above scenario will not be applicable to you, this opportunity would have been missed if we had not reviewed and understood the underlying preservation components of a client’s super fund benefits. If you would like to hear more about this topic, please check out our website, social media or book in for a complimentary discussion with one of our Advisers. We look forward to making your retirement journey easy.