Transition to retirement (TTR) strategies will remain valid despite the Government’s 2016 Budget changes.
A TTR remains as a valid option for pre-retirees as they approach retirement age as it retains:
- The ability to trade off taxable employment income with pension income that is taxed more favourably to an individual, with the benefit of increasing the amount that is accumulated in the super fund to help a member reach their retirement goals;
- The ability to allow a member to transition to retirement through a gradual or partial reduction in their employment hours and using the TTR to supplement income needs; and
- The ability to access some accumulated superannuation savings to accelerate repayment of debts, such as a home loan, which will reduce expenses when the member fully retires.
From a TTR perspective the only benefits that have been lost are the tax exempt status of the pension earnings in the fund that support the pension itself . The concessional contribution cap has also been reduced to $25,000. Effectively, the consequences were:
- Fifteen per cent tax on the earnings on assets that support the TTR income stream; plus
- The difference between the member’s marginal rate of tax payable on the (up to) $10,000 reduction in the concessional cap that would otherwise have been contributed to super and the 15 per cent tax that would have been payable in the accumulation fund on that amount; less
- The amount of tax that the member would have paid on the TTR income drawn during the year that would be above the amount expected to be withdrawn post 1 July 2017.
“Applying the above formula will result in the loss of some amount of a benefit to the member, but it is unlikely that it will reduce the tangible benefit of a TTR strategy to nil.