Transition to Retirement
January 2012
The TTR criteria
You must have reached your preservation age
Must be purchased with super rollover monies only
Allows you to continue working either full-time or part-time but access your
super by way of a pension
You can convert all or part of super to a pension
No lump sum access until retired
Minimum pension 4% p.a. of account balance (3% for the current financial year
due to temporary relief).
Maximum pension 10% p.a. of account balance
Can be rolled back to super if required – conditions apply
Advantages of a TTR pension
Allows you to transition from full-time employment to part-time employment
Give yourself a pay rise
Allows you to work full-time and access your super prior to retirement
Salary sacrifice tax savings
Can be structured to maintain current net income
No 15% tax on investment income or 10% CGT on the pension assets
Advantages of a TTR pension
The only tax you pay is on the pension income you draw
Some or all pension income may be tax free
A 15% tax rebate applies for those aged 55 to 59
If you are over 60 you will pay no personal tax on the pension income you draw
Ability to draw a ‘lump sum’ by taking an annual pension upfront
Super split contributions from younger to older spouse
Disadvantages of a TTR pension
You will need 2 separate super accounts, a pension account and an
accumulation account
You can’t draw a lump sum until retirement
You must draw a minimum pension income every year
Your pension account could run out
Maximum pension limited to 10% of your account balance each year
Unable to make additional contributions to pension account. A new pension
must be established
A TTR pension example
Components
Age
Super
Required income
55 – 59
$550,000
$50,000
Taxable $400,000
Tax-free $150,000
Tax on pension received
Pension income
$50,000
Less tax-free
$13,636
Balance
$36,364
Tax (before pensioner offset)
$3,854*
Pensioner offset
$5,454#
Net tax
* FY11/12 rates, includes Medicare levy (excludes Flood Levy)
# offset doesn’t reduce Medicare liability
$545
After age 60
Tax exempt
Case study full-time to part-time work
Harold has just celebrated his 55th birthday and currently working full time on
salary of $80,000
Harold would like to work part-time so he can play more golf and spend more
time with the grandkids but can’t afford the drop in salary income
His employer is happy to reduce his employment contract to part-time, paying
$55,000 pa.
Harold has $450,000 in superannuation savings (including $100,000 nonconcessional contributions).
Full-time to part-time
Harold now wishes to work 3 days p.w.
Working status Full time
Part time
Gross income
$80,000
$55,000
Tax liability
$18,750
$9,975
After tax inc.
$61,250
$45,025
Will receive $16,225 p.a. ($312 p.w.) less cash in hand after tax if he works
part time
The TTR part-time strategy
As Harold has reached his preservation age 55, he can now take a TTR
pension
Harold rolls over his $450,000 super balance to a TTR pension
This will give a first year minimum pension payment of $13,500 for 2011/12
financial year
His annual income will now be as follows:
New part-time salary
$55,000
TTR pension
$13,500
Total income
$68,500
The full-time to part-time strategy
Position
Full time
Part time
Part time + TTR
Strategy
Gross income
$80,000
$55,000
$68,500
Tax free amount
Taxable inc.
Tax
$ 3,000
$80,000
$55,000
$65,500
($18,750)
($9,975)
($14,103)
Less rebates*
After tax inc.
$ 1,975
$61,250
* Includes Pension and Mature Age Worker Tax Offsets
$45,025
$56,372
TTR case study: Anna aged 55
Client
Anna (aged 55)
Employment
Full-time
Income
$76,000 p.a.
Super
$350,000 (includes $100,000 tax-free)
Anna’s TTR strategy
From 1 July 2011:
Transfer her current super benefits to a transition to retirement pension
Salary sacrifice $25,000 p.a. to super (includes SG)
Draw pension each year as required to be same after tax position
Case study: Anna transitioning to retirement
Do nothing
Implement strategy
Gross income
$76,000
$70,290
Tax payable
$17,490
$11,780
Net income
$58,510
$58,510
$378,188
$27,922
Super balance
Pension balance
$354,535
Net balance year 1
$378,188
$382,457
Balance at 65
$727,530
$803,433
Assumptions:
Super/ Pension investments earn 4.4% income 2.6 % growth p.a. pre-tax
Case study: Anna’s result
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
55
56
57
58
Current Situation
59
60
Age
61
62
63
Transition to Retirement
64
65
Case study: William
William is aged 60 and on a salary of $130K pa.
Requires $92,000 for living expenses
$250K in super.
Commences TTR with $250K.
Min = $7,500 for 2011/12 financial year or
Max = $25,000.
Requires $25,000 (tax-free) maximum pension for year 1. After year 1, can
revert to minimum pension to meet living expenses
$48,341 Total super contribution (including SG) in year 1, however….
After July 2012 and future years concessional contributions limit reduces to
$25,000 from all sources
Case study: William
William - $130K Package and $250K in super
No action
Salary sacrifice
+ TTR
$130,000
$130,000
-
$38,300
$11,700
$11,700
TTR income year 1
-
$23,555
Net income year 1
$92,000
$92,000
$276,110
$43,847
Package
Salary sacrifice
SG
Balances end of year 1
Accumulation super
TTR account balance
Difference
Assumptions:
Super/ Pension investments earn 4.4% income 2.6 % growth p.a. pre-tax
$243,121
+$10,858
Case study: William
William - $130K Package and $250K in super
No action
Salary sacrifice
+ TTR
$276,110
$43,847
Balances end of year 1
Accumulation Super
TTR Pension
Total Superannuation Balance
$243,121
$276,110
Difference
$286,968
+$10,858
Balances end of year 5
Accumulation super
$398,188
TTR Pension
Total Superannuation Balance
Difference
$248,854
$210,458
$398,188
$459,312
+$61,124
Your super checklist
Client age
Strategies
<55
55 - 64
65 - 74
Personal contribution to $150K p.a.



Use of averaging rules to $450K


Salary sacrifice



Personal deductible contributions



Co-contributions



Transition to retirement pensions

Tax effective income streams




Gearing in super

Asgard Capital Management Limited ABN 009 279 592, AFSL 240695 (Asgard). Information current as at 1 January
2012. This publication provides an overview or summary only and it should not be considered a comprehensive
statement on any matter or relied upon as such. This presentation contains general information only and does not take
into account your personal objectives, financial situation or needs. You should therefore consider whether information or
advice contained in this presentation is appropriate to you having regard to these factors before acting on it. You should
seek personalised advice from a financial adviser and your accountant before making any financial decision in relation to
matters discussed in this presentation. The taxation position described is a general statement and should only be used as
a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual
situation may differ and you should seek independent professional tax advice. Consider our disclosure documents which
include our Financial Services Guide available on www.asgard.com.au. © Asgard Capital Management Limited 2012.
19