Transition to retirement – have your cake and eat it too
Transition to retirement rules allow you to access your superannuation while you are still working, so you can:
- Save tax,
- Grow your Super, and/or
- Reduce your working hours.
How does it work? It’s all about access.
You have unrestricted access to your Super from 65 years of age, whether you continue to work or not.
If you are between your preservation age and 65, you have access if you permanently retire (or are disabled) or if you choose to transfer all or part of your Super to an account-based pension (otherwise known as an ‘allocated pension’).
You must then draw an annual income stream from this account of at least 4% and no more than 10% of the account balance. (After reaching 65, these percentages change but then you have full access anyway.)
So what’s the big deal? Oh, just legal tax savings…
- > The earnings of the assets underlying your account-based pension are tax free.
- > If you’re over 60, your account-based pension income stream is tax free.
- > If you’re between your preservation age and 59, your account-based pension income receives a 15% tax offset.
Most people use the transition to retirement provisions in one of two ways.
1. Business as usual. Keep working full time, but simultaneously salary sacrifice extra amounts to Super, while withdrawing from your account-based pension to maintain the same after tax income. Your tax savings then boost your Super.
2. Back off a little. Keep working but reduce your hours, maintaining your after tax income by way of your account-based pension income stream.
The Details
The transition to retirement provisions allow you to have your cake and eat it but as usual the devil is in the details. For example:
- > Members of defined benefit funds cannot access an account-based pension.
- > If you or your partner are receiving social security benefits, there may be implications for your, or their, entitlements.
- > The tax implications (as always) can be complex.
- > If you have life insurance with your super fund, you will need to check to make sure your life cover does not reduce or cease as you move funds to an account-based pension.
Your preservation age (the age at which you can access your super)
| If you were born... | Your preservation age is: |
| 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 |
| 1 July 1964 or after | 60 |