Transition to Retirement
Under Transition to Retirement rules, if you have reached preservation age, you may now be able to use a superannuation income stream to reduce your working hours without reducing your income, or keep working full-time and use the income payments to boost your super. If you decide to reduce your working hours, you can do this by topping up your part-time income with a regular 'income stream' from your super savings. Previously, you could only access your super once you turned age 65 or retired.
Under these rules, you can only access your super benefits as a 'non-commutable' income stream. A non-commutable income stream is one that cannot be converted into a lump sum withdrawal. This generally means you cannot take your benefits as a lump sum cash payment while you are still working. You must take your super benefits as regular payments.
Employers still need to make compulsory super guarantee contributions for all of their eligible employees, including people in transition to retirement.
By starting a transition-to-retirement pension (TTR), you can access any amount from 4% up to 10% of your transferred superannuation assets each year. Then once you turn age 65, or meet some other condition of release, the 10% per annum withdrawal cap is removed.
To establish a TTR strategy, you must first open a pension account. You will be operating two accounts - a superannuation accumulation account plus the pension account.
You must have a minimum of $50,000 to start your TTR account and must leave a minimum of $5,000 in your accumulation account.
It is possible to consolidate any other super funds that you have into your accumulation super account prior to setting up your pension, so that you have more funds available to move into the pension account. This is important, as once your pension is established you cannot add further funds into it.
The major benefit of setting up a TTR strategy is that you can access the tax advantages associated with super pensions while you're still working. Tax advantages include tax-exempt earnings on assets financing the pension in the current financial year (from 1 July 2017 this exemption will cease); and tax-free pension income for those over age 60. If you start a TTR when you're under age 60, then you can take advantage of the 15% pension rebate on assessable pension income.
Depending on your individual strategy, it is possible to reduce the amount of income tax that a person pays while boosting the super benefit. For example, one of the more popular TTR strategies is to salary sacrifice your wages into your super fund. You must be careful about going over your concessional (before-tax) contributions, and replace that income with tax-free (if over age 60) or concessionally taxed pension payments (if under age 60).
The current (2016/17) contributions cap is $30,000 for those under 49 years of age on 30 June 2016, and $35,000 for those 49 years of age or more on 30 June 2016. For both age groups, the concessional cap will reduce to $25,000 per annum from 1 July 2017. Please note that concessional contributions also include employer contributions as well as any salary sacrifice contributions you make.
The right combination of salary and super will depend on your salary level, your age, your tax position, the size of your super benefit and your income needs.
A TTR is like any other account-based pension, except for two important requirements:
- You can withdraw no more than 10% of your pension account balance each year as pension income.
- You cannot withdraw lump sum payments from your TTR pension until you retire, or until you satisfy another condition of release, such as reaching the age of 65.
Another way of increasing your super balance prior to transferring your super across into a pension account is through making a non-concessional contribution.
Generally speaking, non-concessional contributions are voluntary contributions that you make from after-tax capital. You do not get a tax deduction for making a non-concessional contribution and you do not pay any tax as the contribution is made into super. The non-concessional (after-tax) contributions cap for the current 2016/17 financial year is $180,000 per annum. This will reduce to $100,000 per annum from 1 July 2017. You can also exercise the bring-forward option, which allows you to make three years of non-concessional contributions in one financial year and forgo the opportunity to make any further non-concessional contributions in the following two financial years.
If you take advantage of the bring-forward rules during the current 2016/17 financial year, you can make up to $540,000 in non-concessional contributions up to 30 June 2017 (assuming you have not made any other non-concessional contributions in the two financial years immediately prior to the current financial year).
To set up a Transition to Retirement pension account, please complete the Pension Application Form available in
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