Transition to Retirement Pension Changes from 1 July 2017

A raft of superannuation changes are coming into effect from 1 July this year.  These changes, legislated by the Federal Government, are significant and likely to impact most Australians.  Although some of these changes are quite complex, here we will concentrate on changes to Transition to Retirement (TTR) Pension strategies only.

What is a TTR Pension?

A TTR Pension (also referred to as a Non-Commutable Allocated Pension, or ‘NCAP’) involves drawing an income stream from your superannuation while you are still working.  To be eligible to commence a TTR Pension, you must have reached your superannuation preservation age.

TTR Pensions are commenced by moving accumulated superannuation savings into a separate account, from which annual payments must be drawn that represent between 4% and 10% of the total asset value at commencement, and subsequently recalculated at 1 July each financial year.

What’s the advantage?

Currently, any investment earnings (both income and capital gains) generated by the assets supporting a TTR Pension are exempt from tax.

In addition, if you are under the age of 60, the annual payments drawn from a TTR Pension are taxable on your personal tax return at a discounted rate when compared to ordinary income.  If you are over age 60, these payments are received completely tax free.

These concessionally taxed annual payments may also provide additional cash flow to allow you to make pre-tax contributions to superannuation, thereby lowering your taxable income and providing a further tax saving to help accelerate the growth of your retirement savings.

What’s changing?

From 1 July 2017, investment earnings (both income and capital gains) generated by the assets supporting a TTR Pension will no longer be tax exempt, instead being taxed in the same fashion as earnings in superannuation accumulation phase.

Do I need to do anything?

Depending on your circumstances, from 1 July 2017 a TTR strategy may be less beneficial to you (potentially even detrimental).  There are a number of variables in play including your age, your other taxable income and the taxation components of your superannuation savings.

For these reasons, if you currently have a TTR strategy in place, or are about to become eligible for a TTR strategy, you should seek professional advice to determine the most appropriate course of action for your situation.

Contact us on 03 5223 1219 to arrange a meeting to discuss your personal circumstances and how the upcoming superannuation changes may affect you. 

You can read about another significant upcoming change in our Superannuation Contribution Changes from 1 July 2017 article.

General Advice Warning:  The above information is represents general advice only and has been prepared without taking into account your personal objectives, financial situation or needs.  Before acting on any general advice you should consider whether or not it is appropriate in regard to your personal objectives, financial situation and needs.