Transition to retirement pensions
Transition to retirement pensions are superannuation income streams available to those over the age of 55 and still working. They offer the following benefits:
- Greater income flexibility;
- Greater employment and lifestyle flexibility;
- Reduction in personal tax liability; and
- An ability to boost retirement savings.
Did you know that by triggering a super pension, you in fact trigger a tax free environment within your super fund? It's true! All the assets moved into the pension part of the fund will pay no tax on any investment earnings or capital gains, providing a real boost to your overall earnings.
Not only will the assets supporting the pension exist in a tax free environment but the pension income will be completely tax free from the age of 60. A portion of this pension income may be tax free between the ages of 55 and 59, the amount that is not tax free will benefit from a 15% tax offset.
Whilst the taxation outcomes of commencing a transition to retirement pension are attractive, the fact that you will be in receipt of a pension on top of your normal income will mean that you could consider numerous contribution strategies. These could further boost your retirement savings and may provide a higher, longer lasting pension when you do finally retire.
You can see from this simple discussion that there are numerous benefits to this strategy and the outcomes such as maximizing your retirement benefits can be enhanced through the implementation of other complimentary strategies. Other complimentary strategies also exist which further enhance the outcomes discussed.
For more information on this strategy contact Aspley Jandera Super Specialists to arrange an appointment with one of their superannuation strategy specialists.
Case Study
Tom is 56, works full time and is looking to consider his retirement options. Whilst he is not necessarily interested in retiring in the next few years he wants to ensure that he is doing as much as he can to maximize his retirement benefits. Tom's current income is $100,000 p.a. and he has accumulated $800,000 in his super fund.
Consider transition to retirement pension
Tom may consider commencing transition to retirement pension with all of his current superannuation benefits. He could elect to receive a pension between the minimum and maximum allowable pensions which, based on his age would be as follows:
Minimum annual pension:$32,000
Maximum annual pension:$80,000
Tom elects draw a pension income of $56,000, mid way between these two limits. In drawing this pension income Tom acknowledges that he will not require this additional income and therefore elects to make a contribution to super to the same value of his pension income. This contribution will be a concessional contribution and therefore deductible to Tom.
The outcome of Tom commencing his transition to retirement pension is as follows:
|
No Pension |
Drawing a transition to Retirement pension |
Drawing the pension over 60 |
Annual income |
$100,000 |
$100,000 |
$100,000 |
Pension income |
$0 |
$56,000 |
$56,000 (tax free) |
Concessional contribution to super |
$0 |
($56,000) |
($56,000) |
Taxable income |
$100,000 |
$100,000 |
$44,000 |
|
|
|
|
Tax payable |
$27,500 |
$27,500 |
$7,860 |
Tax offset |
$0 |
$8,400 ($56,000 x 15%) |
$0 |
Total tax payable |
$27,500 |
$19,100 |
$7,860 |
|
|
|
|
Net income |
$72,500 |
$80,900 |
$92,140 |
Tom will enjoy the following outcomes:
- A reduction in personal tax of $8,400;
- An extra $8,400 to spend per annum;
- The flexibility to contribute more to super given the extra income; and
- All of his benefits supporting his pension ($800,000) exist in a tax free environment.
You will also see the significant increase in income and therefore tax savings when Tom turns 60.
For more information on Transition to retirement pensions please contact Aspley Jandera Super Specialists to arrange an appointment with one of their superannuation strategy specialists.
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