Ever heard of a workplace pension or a TTR? Well, these are often terms thrown around referring to a pension that you draw from your super fund before you actually retire. Why would you do this, well, perhaps you want to reduce your working hours and top up your income from your super account.
Under the transition to retirement rules, if you have reached your preservation age, you may be able to reduce your working hours without reducing your income. You can do this by topping up your part-time income with a regular 'income stream' from your super savings. In earlier years you could only access your super once you turned 65 or retired. This meant it was difficult to reduce your work hours and still maintain your standard of living. With the current rules, you can withdraw some or all of your super over into a retirement income stream. Then you can top up your reduced income by drawing on your super.
Remember though, if you intend on doing this in your Self- Managed Super Fund, you MUST ensure that your trust deed allows you to do this.
Under the transition to retirement rules you can only access your super benefits as a 'non-commutable' income stream. A non-commutable income stream is one that cannot be converted into a lump sum. This generally means you cannot take your benefits as a lump sum cash payment while you are still working. You must take your super benefits as regular payments.
Your preservation age is generally the age you are allowed to access your super benefits when you stop working. The table below shows your preservation age. Once you reach your preservation age, you can access your super benefits without retiring completely from the workforce.
Table: Your preservation age depends on your date of birth
| Date of birth | Preservation age |
|---|---|
| Before 1 July 1960 | 55 |
| 1 July 1960 - 30 June 1961 | 56 |
| 1 July 1961 - 30 June 1962 | 57 |
| 1 July 1962 - 30 June 1963 | 58 |
| 1 July 1963 - 30 June 1964 | 59 |
| After 30 June 1964 | 60 |
Transition to retirement income streams are taxed in the same way as other income streams.
That means:
- if you've reached your preservation age and are less than 60 years old, the taxable part of your income stream will be taxed at your marginal tax rate. If your income stream is paid from a taxed source, you will also receive a tax offset equal to 15% of the taxable part of the income stream, and
- once you turn 60, your super income from a taxed source will be tax-free.
You may be asking how much you will be allowed to take from your super fund, as we have indicated above, you cannot take a lump sum. There is no specific limit on the amount of superannuation benefits that may be drawn down under the transition to retirement measure other than the requirement that no more than 10% of the account balance, as at the start of the financial year, may be paid each year.
So in the current economic environment, you need to make sure you discuss this requirement with you specialist advisor, and work out a plan not to deplete you super savings before you retire. Then review your trust deed and make sure your investment strategy is in order. Do your tax homework, check all the rules, and then consider a transition to retirement strategy.
