Why Budget Night might be a MayDay call for transition to retirement pensions
55 and over – Act NOW to protect your Super
Everyone loves a good rumour and with budget night less than a month away – due to be delivered on 3rd May – there are many going around. With Australia’s population aging and the baby boomers now at retirement age, it is suspected that the government may look to superannuation, contributions tax, and transition- to-retirement schemes (TTRs). Moreover, it is rumoured that TTRs may be attacked in the May budget. This means if you were 55 or over on 1 July 2015 you may need to act now.
Currently the transition-to-retirement scheme allows a person who has met their preservation age to commence a pension with restrictions without fully retiring.
As part of the Howard-Costello Superannuation System reform in 2006, TTRs were introduced as the Australian workforce was perceived to be facing a skills shortage as baby boomers edged toward the age of 60 and retirement. Simultaneously, with greater life expectancy, older workers were looking to remain in the workforce but reduce their working hours. The issue arising here was access to superannuation.
With most super withdrawals tax free from age 60, employees cannot access their super until preservation age (55 if born before July 1, 1960) unless they are prepared to sign a statement that they are permanently retired. Once they reach age 60 they have to cease an employment arrangement to access their super. With TTRs, 55-and-overs can access their superannuation as an income stream while continuing to work. Win/Win for workforce and older workers alike. Keep working, access super, continue to build super.
So what is it rumoured the government might do come Budget Night?
It’s unlikely Budget night will see changes to salary sacrifice arrangements, but what may occur is a change to the laws so that those wanting to start a TTR would have to declare that their working hours were to be substantially reduced. After all, once you reach 65 you have to pass a work test to be able to contribute, so a “no work” test is not inconceivable.
How can you protect yourself and your super from the impact of the rumoured changes
MayDay is on its way but you are eligible to commence a TTR then you still have time to act. If the Government was to change or abolish TTR’s altogether then there is a good chance that they would grandfather any pensions commenced prior to the budget. If the rules do change, now is the only time to implement the rules as they currently stand.
To discuss TTR Strategies contact Hugo Furzer NOW to discuss how you can protect your super – after Budget night 3rd May it could be too late.
Want to read more? Read Noel Whittakers article on SMH Money
Noel Whittaker, AM, is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Twitter: @noelwhittaker