with Peter Dallimore
Peter Dallimore is a volunteer Financial Counsellor at the
Bribie Island Neighbourhood Centre
If you are still working and have reached preservation age that is between 55 and 60 depending on when you were born, a transition-to-retirement pension enables you to access your super in the form of a pension without retiring. A TTRP lets you ease into retirement, top up your income, continue to receive employer contributions and reduce tax on your income. TTRPs were introduced in July 2005 to help those who wanted to transition to retirement via part-time work.
By starting a TTRP, you don’t have to retire to withdraw your super benefits. You can work part-time, full-time or even casually. TTRPs became less attractive in July 2017 when the government changed the tax rules on super monies used to fund a TTRP. Pre-July 2017 the income on these monies was tax-free. Since July 2017 these monies are now taxed at 15% as are other earnings in the fund so the tax savings are now less than they were but TTRP’s still have the other benefits mentioned above and detailed below. If your income is not sufficient to cover your costs you can use a TTRP to top it up.
The maximum amount that you can draw in a year is limited to 10% of your fund balance. You must also meet the minimum draw requirement that is 4% of your fund balance if you are under 65. By continuing to work you will continue to receive employer contributions that will help balance out the amount you take out in pension payments. If you are aged 60 or older, in most cases, your pension payments will be tax-free.
If you are aged 55-59 then the taxable portion of your pension payments will be taxed at your marginal tax rate, however, you will receive a 15% tax offset. A TTRP used in conjunction with salary sacrifice lets you increase your super nest egg by an amount dependant on your marginal tax rate. The TTRP can replace the income sacrificed into your super fund so that you can cover your living costs and the amount of income sacrificed can exceed the TTRP amount because of the lower rate of tax payable on salary sacrificed contributions. You need to ensure that the sum of your employer super contributions and the amount that you salary sacrifice does not exceed the maximum allowable concessional contributions cap of $25,000.
Before contemplating setting up a TTRP you need to check whether your super fund offers them. If you have life insurance with your fund make sure your life cover does not reduce or cease if you set up a TTRP. Also, check your social security entitlements – If you or your partner are receiving social security benefits, speak to a Department of Human Services Financial Information Service Officer, as there may be implications for you or your partner’s pension and other entitlements. Finally, a relatively unknown loophole in the Superannuation Guarantee Contribution (SGC) rules enables an employer to cut an individual’s SGC entitlements when an employee reduces their taxable salary via a salary sacrificing arrangement.
So check with your employer whether or not salary sacrificing will reduce your employer’s contribution to your super. As always, seek out as much independent information as you can before starting a TTRP. Comprehensive information is available at moneysmart.gov.au and ato.gov.au. Peter can be contacted via email at firstname.lastname@example.org or you can make an appointment to see him by calling the Neighbourhood Centre on 3408 8440. The Financial Counselling service is free.