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Transition-to-30 June

When a person is in their Transition-to-Retirement (TTR) phase, they can receive a major boost in their ability to reduce their exposure to marginal tax rates and make additional contributions into superannuation. The fundamental components of the TTR strategy that drive this benefit are:

• Switching off the earnings tax of the superannuation fund
• Drawing a pension income stream that receives a 15 per cent tax rebate
• Replacing marginally taxed income with 15 per cent taxed superannuation contributions.

TTR pensions were initially presented by Treasury as an opportunity for Australian workers over the age of 55 to transition to retirement by supplementing their part-time work income with a superannuation pension. This proposal was a major break from having to trigger a “condition of release” to access pension payments from their superannuation fund. The TTR legislation also allowed full-time workers to also implement a non-commutable income stream as a transition to retirement.

With the introduction of Simpler Super last year, those over 60 years of age can draw a pension which is tax-free, which also means that other assessable income will attract lower rates of tax. In addition, superannuation contributions can also be made up to the age of 75 for those who meet the work rule of 40 hours in a 30 day time frame, providing the potential to run TTR for up to 20 years from the age of 55.

June 30 is an important day for transition to retirement arrangements as these pensions are restricted to a maximum of ten per cent of the member’s account balance at that date. When undertaking a TTR pension strategy generally the full superannuation balance will be utilised with the aim of exactly matching a member’s current after-tax net income with the pension they will receive under the TTR. Therefore, unlike other wealth creation strategies, there is no requirement for a person to give up disposable income.

Each June 30 a revaluation occurs to determine the new value of the pension for the next financial year. This takes into account any contributions from the member or their spouse during the current financial year.

Those unlikely to benefit from TTR will be individuals who already contribute the maximum deduction, or are on a low income or a low superannuation balance, however the greater the superannuation balance the greater the benefit when commencing TTR. SMSF strategies to build superannuation balances for those preparing to commence TTR at 55 include:

• Instalment Warrants, or borrowing to acquire a superannuation asset, using gearing within the SMSF to increase the value of investments for the member,
• “In specie” transfers of shares from an individual into the member’s account within their SMSF (however these transfers will be considered to be a sale and will trigger capital gains tax if the market value of the shares is greater than the original cost of the shares).
• Increased contributions by the individual into their superannuation.

TTR pensions are an effective way to reduce tax and build wealth.

Espreon Corporate Services has a complete Pension Document package which allows for the Transition-to-Retirement Phase.


Click here or call 1300 139 001 for more information.