Asset Super

Transition to retirement

Moving from work to retirement is a big jump. It means a major change in your daily routine, in what you do with your time, and especially in your finances. But for many people, a gradual shift from full-time work to full-time retirement is attractive.

From 1 July 2006, the Government changed the rules to make moving from work to retirement even easier.  It’s called Transition to Retirement.

So how does it work?

Once you've reached your preservation age, you have the option of unlocking your super and turning some of it into an income – even if you're still working.

The Asset Transition to Retirement Pension (TTR) allows you:

1. To maintain your income while cutting back your working hours. A TTR income stream can
   be used to compensate for your reduced earnings by maintaining your income.  Under this scenario, your total income comes from two sources – your salary and your TTR pension.
   
   
2. To accelerate your super savings in the lead up to your retirement. If you plan to continue working, a TTR income stream can boost your cash flow (income), which will allow you to salary sacrifice a larger proportion of your salary than you may otherwise be able to afford to do.
   
   If you are able to utilise this strategy after age 60, it becomes even more effective as the income from your TTR income stream will be tax-free.

The new regulations are quite flexible. You don't have to satisfy a work test or income test to qualify, and there's no limit on how much of your super you can convert into this type of pension.  But there are some rules:

• You must have reached your preservation age. For people born before 1960, this will be age 55. Preservation gradually increases after this date, and for people born after 1 July 1964, your preservation age is 60.
• Your TTR income stream will be non-commutable until you reach age 65 or retire from the workforce. This means you cannot access a lump sum from this income stream while it is in TTR mode.
• Your income stream must pay you between 4% and a maximum of 10% of the account balance as income each year.  Although some relief has been provided from these rules for the 2008/2009 financial year.

It is also good to know that if your plans should change, it's possible to roll the money into another income stream or back into super if you're still eligible.

Naturally there are tax and other considerations to be taken into account, so if you're thinking about taking a TTR pension it's best to do so with the benefit of professional advice from a qualified financial adviser.

I need help to decide, how do I get it?

One of the best ways to see how a pre-retirement pension may work for you is to try Asset's new Transition to Retirement calculator. This calculator highlights the effect this strategy can have on your super balance before you have fully retired. An optimum transition to retirement strategy is calculated for you based on information you have entered. You can change the level of contributions and pension withdrawals to see how this would affect your strategy.

We would also suggest that you download our Transition to Retirement fact sheet and Asset’s Flexible Pension Product Disclosure Statement for further detail and examples of a transition to retirement pension.

Asset Super also offers personal financial planning advice, through an arrangement with Money Solutions. Click here to find out more.