Superannuation and Transition to Retirement

If you’re considering retirement soon but aren’t ready to throw in the towel completely, the Australian Government’s Transition to Retirement (TTR) scheme might be the choice for you. This scheme provides those who are preservation age with the chance to supplement their income with their super so they can maintain a comfortable lifestyle, or add more to their balance without fear of being taxed too highly.

The 2016 budget changed things recently, though, with a few variations to the scheme meaning the tax incentives of this program were decreased.

So, how will these changes affect your retirement plans and what are your options with superannuation?

The original Transition to Retirement scheme

When it was first created, the TTR was intended to help those planning retirement soon by offering a range of tax incentives for placing more of their income into superannuation.

Those who were of preservation age were able to put more of their income into superannuation, usually through salary sacrifice, and draw down a pension from their super balance to help supplement the costs. This was especially beneficial for those who had reduced their hours to part time work and were looking to live more comfortably on their new rate of pay.

What the recent changes mean for you

The changes within the budget have to do with how the income from the super-based pension accounts is taxed. Where this used to be tax-exempt, these are now taxed as accumulation accounts at 15 percent. This effectively removes any incentive that people under 60 might have to be in a TTR plan.

Another change, intended to inhibit wealthier Australians from using salary sacrificing, means that the tax concessional contribution cap has been lowered to $25,000 from $30,000. This could severely impact those in a TTR arrangement as well.

Setting up a Transition to Retirement pension for yourself

Although there have been some adjustments to how the scheme works, it can still be extremely beneficial for those considering retirement.

Before you can consider if the TTR pension might work for you, ask yourself these questions:

• What are my income needs?

As you get closer to retirement, your income needs are likely to reduce, but you’ll still need to allocate enough money to live comfortably until you retire. Work out how much income you receive from all sources to determine how much you’d need to draw down from in your pension.

• Why type of super fund do I have?

If you’re not a member of an accumulation super fund, the TTR pension won’t be possible for you. Check with your superannuation provider for more information.

• What is my retirement strategy?

Do you want to reduce your hours now to part time, or continue to work for another couple of years as you were? Is your goal to boost your super as much as possible before retirement? If so, TTR is likely a good choice for you.

• What are the implications on my tax?

Using the TTR pension may have implications on your tax, so speak with your financial advisor for advice specific to your situation.

• Will this affect my life insurance?

Some super funds that offer life insurance may decrease or stop your benefits if you begin to access the balance, so check first that this won’t be affected.

For an in-depth discussion about your superannuation and whether a TTR plan is right for you, it’s best to speak with a professional. The experienced team at Hart Partners can provide you with balanced advice on your best options, so you can retire as planned and feel confident your money has been managed well.

We invite you to call us in Melbourne on 03 9600 3220 for all of your financial and accounting needs.