Since 1 July 2017, government changes to super affected members thinking about or already using a transition to retirement (TTR) strategy. If you’re one of them, here are a few things to consider.
First of all, what’s a TTR strategy?
A TTR strategy lets you access super as an income stream—without the need to retire—if you’re of a certain age (generally between age 57–64).
It involves transferring accumulation super into an account-based pension product (like our Flexi Pension), and withdrawing a minimum of 4% and up to a maximum of 10% of the pension each year from that account. Income received from account-based pensions is generally tax-free after you turn 60.
A few reasons you might consider a TTR strategy include:
- The ability to cut down working hours and top up reduced salary income with income payments from your super.
- You can potentially enjoy tax benefits by increasing before-tax (concessional) super contributions when receiving income from super. Here, you may pay less tax by salary sacrificing some of your pay back into your super account while supplementing your lower income with TTR pension payments.
- Using income from a TTR pension can help accelerate debt repayment or fund planned expenses.
- TTRs can help even out superannuation balances between couples.
- You can access super income in addition to your salary to cover other expenses.
So, what’s changed?
Two main changes that came into effect 1 July 2017 affected TTR strategies:
- Investment earnings for account-based pensions are taxed until you turn 65 or meet a condition of release and let us know. The tax on earnings is 15% in line with accumulation-style super accounts, and
- The limit for before-tax (concessional) contributions reduced to $25,000 per year for eligible members.
Super and tax can be complex. We strongly recommend you seek financial advice before considering any of these strategies. Our in-house team of financial advisers can help you work out what pre-retirement strategies can work for you. Learn more about UniSuper Advice or get in touch.
Is TTR still right for me?
Whether a TTR is right for you depends on your circumstances, some of which may include your:
- type of super (i.e. accumulation or defined benefit)
- cash flow and income requirements
- personal tax position
- ability to contribute to super up to the $25,000 before-tax (concessional) cap each year
- your super balance and whether it includes tax-free or unrestricted non-preserved amounts
- working status, retirement age and lifestyle goals, and
- debt position, including assessment of your total net worth.
Are there other strategies?
A TTR strategy can be a tax effective and useful cash flow strategy for some members. However, depending on your situation, other strategies that may work for you include:
- making after-tax (non-concessional) contributions into super
- making spouse contributions and/or contribution splitting with your spouse
- investment strategies outside of super, including tax-effective share or managed fund portfolios, or
- assessing your lifestyle or work arrangements to cater to your short and long-term goals.
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Written by Derek Gascoigne, Private Client Adviser, UniSuper Advice