Transition to Retirement Pension

If you are looking for a way to smoothly move from work to retirement then transition to retirement pension is something that can help you out with it. Once you reach the preservation age- which is usually 55 with the number increasing and can be 60 if you were born after June 30, 1964- you can maintain or reduce the working hours and access the super (which includes the preserved pension) through a super pension.

It is a very common tendency of many people to look for various options to increase super savings once they gets closer to retirement. And the simpler super reforms introduced by the Government during July 2006 has made it quite possible by making the majority of transition to retirement (also known as TTR) rules.

An individual can utilise the transition to retirement rules through the salary sacrificing part or all of his/her employment income into super and simultaneously can initiate an allotted pension from the available super funds. It is to be mentioned that the pension generates income for an individual while that person continues to work and that is tax free for people who are over 60 years old. For those within the age limit of 55 and 60, it carries as much as 15% of tax rebate.

In addition to this, one will enjoy a significant level of tax benefits through salary sacrificing the income into super, paying 15% of contributions tax only as opposed to the PAYE income tax rates that can be as high as 45%.

Who Should Pursue this Strategy?

Now the question is when a person should choose to apply this strategy to make the best out of it? According to the majority of advisers, the strategy is going to work best for someone who is 60 years old or above or at least 55 years old. In between now to June 30 2012, a person can take a pension income stream free of tax and can contribute (which includes both salary sacrifice and employer contributions) up to as much as $100,000 at a yearly basis.

In order to apply the transition to retirement or TTR strategy, you need to reach the preservation age to gain access to the super benefits. Your preservation age is going to be 55 if you were born before July 1, 1960, phasing to age 60 for those who were born after June 30, 1964.

It is to be mentioned that those who are planning to go for the TTR strategy should not have any debt because of the reduction in cash flow.

Cost of Setting up TTR

The fees to set up a TTR arrangement should be at a minimal level and should not cost you anything at all if you are setting up the scheme all by yourself. And once you reach your retirement age, the commutation of TTR pension back to accumulation phase is also acceptable and it should be done at a minimum expense. At the same time, it is important to keep in mind that TTR arrangements are not offered by all super fund providers.

Things to take Under Consideration before Setting up a TTR Strategy

Before making up your mind regarding whether to set up a TTR strategy or not, it is recommended that you check out how much your pension worth and the amount that you require as living cost, and then you should calculate whether your needs are going to be covered by the after tax income from the pension. After that, you need to send an application to the super fund for the pension to commence and at the same time will have to inform your payroll office regarding your decision to salary sacrifice to superannuation.

It is to be mentioned that the Australian Taxation Office stamp of approval is available for TTR strategy according to which anti-avoidance provisions will not be applied where this strategy is in use. The only thing about which ATO will remain concerned is, whether accessing the pension or undertaking the salary sacrifice is contrived or artificial.

Note: the information discussed above is of general nature and does not constitute advice regarding personal investment.