Can you still have your cake and eat it too?

08-Sep-2017

How the rules affecting transition to retirement and contributions have changed.

For most, super is one of the central pieces to consider when preparing for retirement. With changes to transition to retirement (TTR) regulations implemented on 1 July 2017, those who have retired or nearing retirement should be carefully examining their strategy to ensure it continues to meet their needs.

Transition to retirement strategies are much like having your cake and eating it too. The strategy allows you to keep working while drawing on some of your super benefits as you move towards complete retirement. By supplementing your salary you can maintain your lifestyle while reducing work hours or salary sacrificing into super to save on tax.

This was an attractive approach for upcoming retirees looking to boost their savings as the earnings for TTR accounts were not subject to tax. However, today the investment earnings on a TTR account no longer receive a tax exemption and are taxed at 15% - just as they are in a super accumulation account. This measure applies to all TTRs whether they were started before 1 July or not.

Who will it affect?

For members under the age of 60, or higher income earners, the strategy may no longer be beneficial. While the tax on the income drawn from a TTR stays the same (the marginal tax rate less 15% if under 60 and tax-free if over 60) the addition of tax on earnings will likely make this strategy less worthwhile. On the flip side, for those focused on reducing work hours for lifestyle reasons it may be suitable to use their super to replace lost income.

It's time to review your strategy

There are other changes to consider. The concessional super contributions cap has been reduced from $30,000 or $35,000 a year - depending on age - to $25,000. Where concessional contributions caps were previously available on an annual ‘use it or lose it’ basis, a 1 July 2018 ‘catch-up’ concessional contribution measure will be introduced. There are also new restrictions on the way death benefit payouts are calculated. 

So, will you be eating cake? Given the latest round of super changes, we recommend reviewing your retirement strategy to be sure your plans remain on target.

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