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Transition to retirement pensions

What’s a transition to retirement pension?

A transition to retirement pension is a type of account based pension that allows people between the ages of 55 and 64 to access part of their super through a pension while still working. They can transition more easily from full-time to part-time work and supplement their earned income with pension income. The good news is that it can also be used if working full-time and, when combined with a salary sacrifice strategy, can provide significant tax and savings benefits..

What are the benefits?

  • Supplement your income: If you want to work fewer hours, a transition to retirement pension can supplement your part-time income so that you can maintain your current lifestyle.
  • Maximise your super: As you are still working you can keep contributing to your super while using a transition to retirement pension. This includes 9% employer super guarantee and salary sacrifice.
  • Also, it’s not essential to need extra income to benefit from a transition to retirement pension. In combination with a salary sacrifice strategy, you can save considerable tax and boost retirement savings .
  • Tax-effective income: Income that you receive from a transition to retirement pension is favourably taxed compared to your earned income.
  • If you’re aged 60 and over, the pension income is tax-free and if you’re between 55 and 59, it is taxed at your marginal tax rate and receives a 15% tax offset.
  • Flexibility: If your circumstances change, you can stop this type of pension and revert to simply accumulating your super.

Who is it suitable for?

A transition to retirement pension may be suitable if:

  • you’re between age 55 and 64
  • you’re still working
  • you want to supplement your income or
  • you want to boost your super and save tax.

Strategy considerations

A transition to retirement pension and associated strategies can be complex. Here are a few things to consider:

  • Tax position: A transition to retirement pension and salary sacrifice strategy will generally be most effective if you are in a high marginal tax bracket and are salary sacrificing more than you are drawing down from a pension.
  • Impact on retirement savings: If you use part of your super to access a transition to retirement pension, this may impact your future lifestyle. One way to avoid eroding your retirement savings may be to combine the pension with a salary sacrifice strategy.
  • Super contribution limits: If you are salary sacrificing in combination with a transition to retirement pension, it’s important to contribute within the allowed limits to avoid paying excess tax. Until 30 June 2012, concessional super contribution caps (which include salary sacrifice and super guarantee) for anyone 50 or over are $50,000 pa, however, after this date they will reduce to just $25,000 pa. Any excess over the cap will be effectively taxed at the top marginal tax rate.
  • It is important to note: This strategy does not exclude those of you who are self-employed as you are able to make concessional (tax deductible) contributions into superannuation in place of salary sacrifice contributions, allowing you the same benefits as those who are employees.  

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