Superannuation is the most common savings vehicle for our retirement. There are two phases of superannuation, the ‘accumulation’ phase, which is where your fund is added to and grows during working years, and the ‘drawdown’ phase, which is where you start to access your super as a pension.
One of the main advantages of starting a pension with your super, is that earnings within the fund become tax free, as opposed to the regular 15% tax during the accumulation phase. This tax free status applies to pensions started when the member is still working and age 56-64, called Transition to Retirement Pensions (TTR’s). It also applies for Account Based Pensions, which occur when a member is age 65 or age 56-64 and has retired / met a condition of release.
Therefore a common strategy for pre-retirees is to start a TTR pension during the years 56-64 and still working, predominantly to benefit from the tax free earnings status. From 1 July 2017 however, TTR pensions will lose this benefit and instead be taxed at 15% on earnings, in line with the accumulation phase.
As there is no tax advantage on the earnings within a TTR pension anymore, what should you do with your TTR?
Option 1. Retire (or meet another condition of release)
If you retire, your fund becomes a regular Account Based Pension and therefore retains tax free earnings status.
Option 2. Roll your TTR back to Accumulation phase
You may want to simply roll the fund back to accumulation phase to stop the unnecessary draw down of your super.
Option 3. Retain TTR
The simplest and easiest thing is to do nothing and retain the TTR. In addition, retaining the TTR may help you supplement your income to reduce working hours, or allow you to salary sacrifice to super for example and benefit from tax benefits that way.
While the above options seem simple enough, there is one more matter to consider, unrealised capital gains on the investments within your TTR. This is a complex matter and requires specialist advice as each of the above options will have different implications on what happens to the unrealised gains.
If you would like to discuss these strategies further or any other financial matter, please contact me on (08) 8409 4333 or by email Andrew.Barlow@williambuck.com
Disclaimer: The contents of this article are in the nature of general comments only, and are not to be used, relied or acted upon with seeking further professional advice. William Buck accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. Liability limited by a scheme approved under Professional Standards Legislation.