The super reforms impact transition to retirement pensions and the role they could play in pre-retirement planning.
What’s a transition to retirement pension? A transition to retirement (TTR) pension is a pension that has started with superannuation money when you have reached your preservation age8, but have not yet retired. These pensions can provide a tax-effective source of income to supplement income from employment or self-employment in the lead-up to retirement.
A common strategy
Many people have implemented a strategy whereby they have: • arranged with their employer to contribute part of their pre-tax salary directly into super (via salary sacrifice) or made personal deductible super contributions • transferred some of their existing super in a TTR pension, and • used the regular payments from the TTR pension to replace the cashflow used to make the extra super contributions. Using this strategy provides the potential to build a bigger retirement nest egg without reducing current income.
Impact of reforms
The super reforms that could impact this strategy from 1 July 2017 include: • the reduction in the annual cap on concessional (pre-tax) super contributions from $35,000 / $30,000 (depending on age) to $25,000, and • the increase in the tax paid on earnings on investments held in TTR pensions from 0% to a maximum of 15%.
From 1 July 2017, it’s anticipated this strategy will remain effective for some people, but for others it may not be viable.
You should speak with a financial adviser who can help you assess whether this strategy remains suitable. It is important to consider the changes as your super fund may be eligible for capital gains tax relief depending on steps you take prior to 1 July 2017.
Top up your income when cutting back work Despite the super reforms, a TTR pension can still be effectively used to replace reduced income if you plan to scale back your working hours. For example, if you plan to cut back your working week from five to three days, you may be able to start a TTR pension and draw enough income to compensate for the two days you won’t be working.
By doing this, you’re likely to pay less tax on the income you receive from the TTR pension than you do on your salary or business income. This is because the taxable income payments from a TTR pension attract a 15% tax offset between preservation age8 and 59, and the income payments are tax-free9 at age 60 or over.
If you would like to use a TTR pension to top up your income when cutting back your work, we recommend you speak with a financial adviser.
We are an award winning practice that has been providing financial advice to South Australians since 1969. We really enjoy getting to know our clients and building a relationship with them that lasts over many years. We have a diverse range of clients from mum and dad to AFL players to ASX CEOs. All of which have a diverse range of financial advice needs and very different relationships to maintain. Our clients describe a 'breath of fresh air', personable, expert and people with high integrity. Clients have also mentioned that they are not treated as a number and the advice is specific to them. Working with clients for clients.
Financial Planner Adelaide
The one most rewarding thing about being a financial planner in Adelaide is when you have been working collaboratively with a client in developing and building their goals and objectives and the come to fruition. This give both the clients and myself a real sense of achievement and to use the famous quote 'are we there yet?' and together we can say YES! There has never been a better time to look towards what you want to achieve and start a financial plan so you can get there too.
Financial Planning Adelaide
A person's financial story is like a jigsaw puzzle... "lots of pieces needing to be put into their correct places". A financial adviser can assist a client to put the pieces in the right places by having a series of simple conversations about where a they are currently situated, where they want to be and what strategies can assist them. Every client has a different financial story and goals. Each jigsaw puzzle will always be different. A good financial adviser is experienced at putting together a wide range of jigsaw puzzles. Helping a client put their own puzzle together and seeing their satisfaction is a wonderful feeling.
Barry Phillis, Chris Scriva, Paul Cetrangolo and Owl Financial Management Pty Ltd are Authorised Representatives of GWM Adviser Services Limited Australian Financial Services Licensee Registered Office at 105-153 Miller Street North Sydney NSW 2060 and a member of the National Australia group of companies.
GENERAL ADVICE WARNING: The advice on this site may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.
Opinions constitute our judgment at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. View Terms & Conditions >