When do I need an approved deposit super fund account?

When you change jobs or lose your job, you may be eligible for certain employment termination payments (ETPs). These ETPs can include severance pay, gratuities, and cashed-out sick leave, depending on how long you worked with the employer and how your employment ended. This payment can be made to you in multiple ways depending on the details of your ETP.

If you’ve recently been fired, made redundant, or if a loved one has died suddenly, you may be eligible for an ETP. If this is the case, you can ask the employer to contribute the payment to an approved deposit superannuation fund account. This account will then invest the money, adding to the funds you have available for retirement. 

You should learn about the tax implications before transferring ETPs to an approved deposit fund. If you receive these payments within a year of your employment’s end date, you may need to pay tax at a concessional rate on the lump sum received from your employer. 

On the other hand, you may only withdraw the sum and any profit gained from an approved deposit fund when you retire or turn 65 and pay tax at that time. You may only withdraw these benefits as a lump sum, not as a pension, and pay tax at the applicable rate.

Approved deposit funds are considered “rollover vehicles”, according to the ATO, and are not eligible to receive super guarantee contributions or voluntary super payments. You’re not able to make regular contributions as you are with a standard super fund. You can only take a lump sum rather than a pension income stream.

Some superannuation benefits can also be rolled over into an approved deposit fund. This can help if you aren’t planning on working full-time again after you’ve taken the ETP. Doing this will mean you only have one super account to withdraw benefits from when you meet a condition of release. However, you won’t have the option of starting a transition-to-retirement income stream or receiving a pension. You also can’t continue using the approved deposit fund account beyond the age of 65 years.

Regular super funds allow you to make regular contributions up to the age of 75 if you meet the conditions. These funds also allow more flexibility on how you can withdraw the benefits. There are also different tax implications depending on how you access your super benefits. Ensure you understand them before choosing to use an approved deposit fund. 

It may be helpful to compare the tax rate for a lump sum withdrawal from an approved deposit fund against the rate for a similar withdrawal from a regular super fund account. Also, consider comparing this tax rate with the rate for withdrawing super as an income stream. 

Also, considering that approved deposit fund accounts may not receive significant contributions, the fund managers’ investment strategy could differ from that of regular super funds, affecting the returns you can earn on your super. If you’re thinking of using an approved deposit fund account, you should find out how your money may be invested before making any commitments.