The changes to superannuation announced in the 2016 Federal Budget have been passed by Parliament. Amongst the changes was legislation which will remove tax concessions for transition to retirement pensions (TTRs) and bring them closer to their purpose of providing income to members as they transition to retirement.
Transition to retirement pensions (TTRs) make it possible for you to continue working whilst drawing down some of your superannuation benefits. You can supplement your salary, maintain a lifestyle, save tax and boost your super before you retire.
The new rules will remove the tax exempt status that TTRs have long enjoyed on earnings on fund investments. Assets supporting a TTR will generally be taxed at 15% from 1 July 2017.
The main issues that you need to consider because of the changes include:
- Having a clear objective of the purpose of maintaining a TTR or setting one up in your fund. Without the tax exempt status, TTRs are no longer a ‘no-brainer’ in garnering tax concessions for your finances.
- TTRs are still useful to help you:
- Cut back on work hours and supplement your income with pension payments as you move towards retirement
- Increase your income with pension payments while you continue in the workforce until a full condition of release is met
- Reduce your taxable income and increase your superannuation balance without effecting your take home pay through a salary sacrifice arrangement.
- Reviewing your situation to determine if you have met or soon will be eligible to start an account based pension (which has tax-free earnings) instead of a TTR.
- Ensuring that a condition of release (an event that allows you to access your super) has been met which allows a TTR to be commenced.
The condition of release for TTRs is reaching preservation age.
What is your preservation age?
| Date of birth | Your preservation age |
|---|---|
|
Before 1 July 1960 |
55 |
|
From 1 July 1960 until 30 June 1961 |
56 |
|
From 1 July 1961 until 30 June 1962 |
57 |
|
From 1 July 1962 until 30 June 1963 |
58 |
|
From 1 July 1963 until 30 June 1964 |
59 |
|
On or after 1 July 1964 |
60 |
- Determining your eligibility and capacity to make salary sacrifice or deductible contributions pre and post 1 July 2017 will assist in a decision to start or maintain a TTR.
Transition to retirement pensions must still meet the current pension minimum standards beyond 1 July 2017. This means a minimum pension withdrawal of 4% and a maximum pension withdrawal of 10% of your TTR balance.
Transition to retirement pensions will also potentially have access to the transitional capital gains tax relief for superannuation assets affected by the new rules starting on 1 July 2017. This capital gains relief will ensure that any capital gain on affected superannuation assets will be disregarded or deferred to a later time when the asset is sold. This is a complex area of law that we encourage you to discuss with a trusted SMSF Specialist.
Seek advice from an SMSF Specialist
It is important to seek the advice of an SMSF Specialist in order to assist you in understanding these rules and how they may relate to your specific circumstances. To find your nearest SMSF Specialist, use our Find a Specialist function.
Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.