After a lifetime of work, retirement is the reward. If self-funding, retiring before pension age or saving to meet retirement financial goals, you will need to have a strategy in place to ensure your retirement is all that you’d hoped for.
Here are a few things to keep in mind.
Transition to Retirement (TTR), Account Based Pension (ABP)
A Transition to retirement (TTR) income stream is a type of pension that allows you to access part of your super while still working. This strategy allows you to supplement your salary and maintain your lifestyle while you reduce work hours or salary sacrifice into super to save on tax. It also allows you to wind down your hours to exit the workforce (however you do not have to decrease your hours). To start a TTR you need to have reached your preservation age, which depending on the year you were born will be between 55 and 60.
There are some restrictions to a TTR. There is a minimum of 4% and a maximum of 10% of your total super balance you can withdraw each financial year. Also, up to age 60, the taxable amount of your income from a TTR pension is taxed at your personal income tax rate, less a 15% tax offset. Then, once you turn 60, the income you receive from your TTR pension is completely tax-free.
An account-based pension (also known as an allocated pension) is a regular income stream, purchased with money you have accumulated in super, after you have reached preservation age, with fewer restrictions than a TTR.
You still have to withdraw a minimum from an ABP which depends on your age. However, the maximum you can withdraw from your pension is the balance of your pension. Your pension payments can be made monthly, quarterly, half yearly or yearly and continue until the balance of the pension has been taken. When you are between 55-59, the pensions taken are taxed the same as a TRIS above. Once you turn 60 all of these payments you take from your ABP will be 100% tax-free.
Account-based pensions are not guaranteed to last for a set period of time. It will depend on how much you withdraw each year, your investment returns and the fees you pay.
So, what if you are eligible for the age pension? Your Age Pension entitlement is determined by an income test and an assets test by Centrelink. Your pension balance will be counted as an asset under the asset test (unlike your main residence). However, if you started your account-based pension before 1 January 2015, and were already receiving a Centrelink pension or allowance, then only part of your pension income will be assessed under the income test. If you commenced your pension on or after 1 January 2015 then the whole balance will be deemed for income test purposes.