For people moving from full-time employment to retirement, a transition to retirement pension can be a great way to supplement your income, One of the features of a transition to retirement pension is that it allows you to supplement your income if you decrease your working hours. A transition to retirement pension can also allow you to salary sacrifice, which can boost your retirement savings and reduce the tax you pay..
You will need to contact your superannuation fund provider to see if they offer a transition to retirement pensions. You may be able to start your pension in a self-managed super fund, depending on the conditions in the Trust Deed.
If you have reached your preservation age (see the table below) you may be able to use a transition to retirement pension to access your superannuation while you are still working as a non-commutable income stream. The term non-commutable means you can’t get the pension in a lump sum until you have satisfied a condition of release. These conditions include retirement or reaching the age of 65. While you might have reached preservation age, you may not have met a condition of release.
The preservation age is usually the date that you can have access to your superannuation, depending on your date of birth.
|
Date of birth |
Preservation Age |
|
Before 1 July 1960 |
55 |
|
1 July 1960 – 30 June 1961 |
56 |
|
1 July 1961 – 30 June 1962 |
57 |
|
1 July 1962 – 30 June 1963 |
58 |
|
1 July 1963 – 30 June 1964 |
59 |
|
After 30 June 1964 |
60 |
You have to withdraw a minimum amount each year as a pension and you cannot exceed 10 per cent of the balance as at 1 July, You must also remember that no lump sum repayments are allowed.
In terms of paying tax on a transition to retirement pension, if you are under 60 years of age, you will pay tax on the taxable part of your pension at your marginal rate, but you will receive a tax offset of 15% if your pension is paid from a taxed source.
However, if your pension is paid from a taxed source once you reach 60 years of age, it is tax free.
You should contact your superannuation provider to identify which part of your benefit is taxable, or it may be on your superannuation statement, Your accountant will be able to help you if you are operating a self-managed superannuation fund. While most people belong to a taxed superannuation fund, some government superannuation funds are untaxed, which means you will pay higher tax on pensions,
While you cannot add more money to your transition to retirement pension, if you are eligible to contribute to your superannuation you might be able to start a new superannuation accumulation account.
A transition to retirement pension can provide more flexibility leading up to your retirement. They can boost your superannuation retirement savings, supplement your income if you choose to work less hours, and reduce your tax. However, there are things your need to address and your chartered accountant will be able to help you in determining if it is the right choice for you.