transition to retirement who is presenting, where are they from? date? january 2012
TRANSCRIPT
Transition to Retirement
Who is presenting, where are they from?Date?
January 2012
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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
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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
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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
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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
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A TTR pension example
Components
Age 55 – 59Taxable $400,000Tax-free $150,000
Super $550,000
Required income $50,000
Tax on pension received
Pension income $50,000
After age 60
Tax exempt
Less tax-free $13,636
Balance $36,364
Tax (before pensioner offset) $3,854*
Pensioner offset $5,454#
Net tax $545
* FY11/12 rates, includes Medicare levy (excludes Flood Levy)
# offset doesn’t reduce Medicare liability
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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 non-concessional contributions).
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Full-time to part-time
Harold now wishes to work 3 days p.w.
Working status Full time Part timeGross income $80,000 $55,000Tax liability $18,750 $9,975After 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
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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 $55,000TTR pension $13,500Total income $68,500
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The full-time to part-time strategy
Position Full time Part timePart time + TTR
Strategy
Gross income $80,000 $55,000 $68,500
Tax free amount $ 3,000
Taxable inc. $80,000 $55,000 $65,500
Tax ( $18,750) ($9,975) ($14,103)
Less rebates* $ 1,975
After tax inc. $61,250 $45,025 $56,372
* Includes Pension and Mature Age Worker Tax Offsets
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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)
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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
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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
Super balance $378,188 $27,922
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
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Case study: Anna’s result
0
100,000
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900,000
55 56 57 58 59 60 61 62 63 64 65Age
Current Situation Transition to Retirement
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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
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Case study: William
William - $130K Package and $250K in super
No actionSalary sacrifice
+ TTR
Package $130,000 $130,000
Salary sacrifice - $38,300
SG $11,700 $11,700
TTR income year 1 - $23,555
Net income year 1 $92,000 $92,000
Balances end of year 1
Accumulation super $276,110 $43,847
TTR account balance $243,121
Difference +$10,858
Assumptions:Super/ Pension investments earn 4.4% income 2.6 % growth p.a. pre-tax
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Case study: William
William - $130K Package and $250K in super
No actionSalary sacrifice
+ TTR
Balances end of year 1
Accumulation Super $276,110 $43,847
TTR Pension $243,121
Total Superannuation Balance $276,110 $286,968
Difference +$10,858
Balances end of year 5
Accumulation super $398,188 $248,854
TTR Pension $210,458
Total Superannuation Balance $398,188 $459,312
Difference +$61,124
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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
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BT Portfolio Services Ltd ABN 73 095 055 208 (BTPS) operates Wrap including Wrap Essentials (Wrap) and administers SuperWrap including SuperWrap Essentials (SuperWrap). BT Funds Management Limited ABN 63 002 916 458 is the trustee and issuer of SuperWrap. Your Dealer Group may also operate a Wrap offering, otherwise its role in relation to Wrap and SuperWrap (Wrap Products) is limited to distributor only. This document has been prepared and is provided solely for the general guidance of advisers and has been prepared without taking into account any individuals objectives, financial situation or needs. The information in 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. 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. This disclaimer is subject to any contrary requirement of the law. Information current as at 1 January 2012. © BT Funds Management Limited 2012.