Transition to Retirement (TTR) is a government initiative introduced around 2005, which enables Australians near retirement to continue working while having access to some of their super funds. This policy allows you to supplement your salary and maintain your lifestyle even with reduced work hours and income.
Benefits of the Transition to Retirement Pension
The TTR pension (TRIP) enables near-retirees to draw down a pension income of between 4% and 10% from their super fund. Those who have reached their preservation age (at least 58 years old) can access their TRIP without retiring.
What this provides is a way to gradually ease into retirement. Near-retirees can reduce work hours and be given a chance to experience some leisure time prior to full retirement. Should your reduced work hours bring reduced income that is not enough to maintain your lifestyle, the TRIP can top it up.
Aside from that, employees continue to receive employer contributions. This balances out what you draw from the super. And all pension payments are tax-exempt if you are aged 60 or older. For 55- to 59-year old holders, pension payments are taxed at the marginal tax rate, but you will receive a 15% tax offset.
This structure is designed so that near-retirees can still be productive and the government can lessen the overall retirement costs, since there will be fewer people encouraged to go on early retirement.
TTR Framework Changes
TRIP is designed to gradually transition people into retirement, and it can be maximised to either reduce work hours or maintain work hours and save tax. In fact, majority of TRIP holders were able to use the structure to boost super savings and take advantage of the marginal tax rate.
In the interview, financial expert Peter Handberg explains how the TTR landscape is not what it used to be. According to him, TRIP enabled employees to divert some of the income straight into the superfund. Reduced income means reduced income tax, and all the diverted income goes into a tax-free environment. Hence, capital growth from the super is almost always guaranteed.
Since July 2018 however, there have been changes in the TTR policy. Handberg explains that an interim measure changes the advantages. “You can still access this strategy to leak out some money, minimum 4%, maximum 10% into your back pocket…but what we are taking away from you is we’re not going to allow you to have all underlying assets in that retirement being tax-free anymore”, he said.
Savings that were possible before are no longer applicable for employees, as there is a 15% taxation within the super fund. Handberg believes, “You could argue that the government has taken a short-term vision as opposed to long-term plans that may come unstuck at one point”.
Policy changes with regards to Transition to Retirement will certainly impact decisions surrounding retirement, taxation strategies and investment considerations. Aside from your own prudent analysis, consulting financial experts could help you manage your retirement funds towards a secure future.
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