Navigating transition-to-retirement pensions
Accessing Super while Continuing to Work
In 2005, the Howard government enacted significant changes to superannuation regulations, introducing legislation that allowed older Australians to access part of their super savings without the need to retire.
This move was a strategic response to the challenges posed by an ageing population and a growing labour and skills shortage. The government aimed to encourage older individuals to remain in the workforce for an extended period, contributing to the economy and addressing demographic shifts.
Transition-to-Retirement (TTR) Pensions
The cornerstone of this initiative was the introduction of transition-to-retirement (TTR) pensions. TTR pensions enable eligible individuals, typically those between the ages of 55 and 60, to access up to 10% of their TTR pension account balance each year, even if they continue to work. The primary goal was to allow older workers to reduce their working hours while supplementing their income with their retirement savings.
How TTR Works
If you’ve reached your preservation age (between 55 and 60) and are still employed, a TTR strategy offers two main benefits:
- Income Supplement: Individuals can use a TTR strategy to supplement their income if they choose to reduce their work hours.
- Tax Optimisation: TTR pensions also allow individuals to boost their super and save on taxes while continuing to work full-time.
Starting a TTR Pension
To initiate a TTR pension, individuals transfer a portion of their super to an account-based pension. It’s important to maintain a balance in the super account to continue receiving the employer’s compulsory contributions or any voluntary contributions made.
However, the decision to start a TTR pension isn’t without considerations:
- Government Benefits: Initiating a TTR pension may impact government benefits, therefore consultation with an accredited and qualified professional advisor is always recommended.
- Life Insurance: Individuals should check if their life insurance coverage may be affected when starting a TTR pension.
Using TTR to Reduce Work Hours
- Continued Super Contributions: TTR strategies allow individuals to receive super contributions even as they withdraw funds.
- Tax Benefits: For those aged 60 or older, TTR pension payments are tax-free, providing a favourable tax situation.
- Affects Retirement Income: Early withdrawal of super may reduce overall retirement income.
Using TTR to Save on Tax
- Super Boost: TTR pensions can be paired with salary sacrificing to enhance super contributions leading up to retirement.
- Tax Savings: Individuals pay a lower tax rate (15%) on salary-sacrificed contributions compared to their marginal tax rate.
- Complexity: Implementing a TTR tax strategy may require financial advice from an accredited and qualified professional advisor.
As individuals approach retirement, a mix of income options may prove beneficial. The transition-to-retirement strategy offers flexibility in managing your finances and work-life balance whilst navigating the later stages of your career.
Seek Professional Retirement Advice
Before making decisions, consult with your financial advisor to understand the potential impacts and benefits tailored to individual circumstances. OBT Financial Planning can help you create a retirement plan that aligns with your objectives and risk tolerance. Contact our friendly team in Gatton or Esk on 07 5462 2277.
Private Wealth Advisers Bruno Tjelder and Damon Zischke and OBT Financial Planning Pty Ltd are Authorised Representatives of OBT Wealth Services Pty Ltd ABN 13 661 409 838 | AFSL 543251.
The information provided is general in nature. It has been prepared without taking into account any of your individual objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. This Financial Planning website page(s) is intended for Australian Residents only. The views expressed in this publication are solely those of the author; they are not reflective or indicative of the position and are not to be attributed to the Advice Licensee. They cannot be reproduced in any form without the express written consent of the author.