Transition to retirement
If you’ve reached your preservation age (between age 55 and age 60 depending on your date of birth), the transition to retirement rules allow you to access some of your super as a regular income stream without having to retire from the workforce.
The preservation age is 55 years until 30 June 2015, after which it will gradually increase to age 60. The table below outlines the preservation age applying to an individual:
|After 30 June 1964||60|
|1 July 1963 - 30 June1964 (inclusive)||59|
|1 July 1962 - 30 June1963 (inclusive)||58|
|1 July 1961 - 30 June1962 (inclusive)||57|
|1 July 1960 - 30 June1961 (inclusive)||56|
|Before 1 July 1960||55|
While you have a transition to retirement income stream you receive a regular income from your super while you continue to work.
Here are 3 important things you should know:
1. What's a "transition to retirement income stream"?
A transition to retirement income stream enables individuals who have reached preservation age to access a part or all of their super in the form of an income stream while they are still working, full time or part time. You can use a transition to retirement income stream to transition more easily from full-time to part-time work, or to potentially boost your super savings and reduce tax.
Once you reach your preservation age, you can access up to 10% of the balance of your pension account balance each financial year as a transition to retirement income stream. Generally you cannot convert your transition to retirement income stream into a lump sum amount.
2. Two transition to retirement strategies to consider:
i. Cut your hours, not your income
You can reduce your work hours and replace your reduced salary with the transition to retirement income stream. So you may be able to maintain your lifestyle but cut down on work. The catch? You may be decreasing your super savings earlier than expected.
ii. Supercharge your super without the sacrifice
You continue to work full time, make salary sacrifice contributions to your super and top-up your reduced salary with the transition to retirement income stream.
Your salary sacrifice super contributions are taxed at 15%, provided your concessional contributions fall within the applicable super contribution caps. While you’re still working full time, the tax rate of 15% may potentially be lower than your marginal tax rate had you received this money as salary – this can help to reduce your tax bill and boost your retirement savings.
Overall this transition to retirement strategy may allow you to contribute more to super than you draw as an income stream, while keeping your after-tax income the same.
3. The tax treatment of transition to retirement strategies
In most instances, income you receive from a transition to retirement income stream is favourably taxed compared to your salary:
- Tax concessions – if you're between preservation age and 59, the taxable portion of your transition to retirement income stream is eligible for a 15% tax offset.
- Tax free income – if you’re aged 60 or over, your transition to retirement income stream is tax-free.
- Tax-free investment earnings – the assets backing your transition to retirement income stream generate tax-free investment earnings, which would otherwise have been taxed at up to 15% if the super had remained in accumulation phase.
A video on Transition to Retirement with your Super Pension Plan by Bryan Ashenden, the Head of Technical at BT.
For more information also see the ATO website.
You should consider speaking to your financial adviser to check whether a transition to retirement income stream is the best option for your personal circumstances.
Things you should know
This information is general advice only and does not constitute any recommendation or personal advice. It has been prepared without taking account of your objectives, financial situation or needs. It is current at the time of publication 15 January 2015, and is subject to change.
The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. It has not been prepared by a registered tax agent. You should seek independent professional tax advice from a registered tax agent about any liabilities, obligations or claim entitlements that arise, or could arise, under a taxation law.
Superannuation is a long-term investment. The Government has placed restrictions on when you can access your preserved benefits. The Government has set caps on the amount of money you can add to superannuation each year on a concessionally taxed basis. In addition, the Government has set a non-concessional contributions cap. For more detail, speak with a financial adviser or visit the ATO website.
This information may contain material provided by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. Information that has been provided by third parties has not been independently verified and the Westpac Group is not in any way responsible for such information.
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