It seems that many Australians nearing retirement don’t like the terms ‘retirement’ or ‘pension’. Some advisers who are recommending transition-to-retirement pensions (TRIPs) are experiencing client resistance because clients are adamant that they’re not retiring (at least not for a few more years), and they don’t want to be embarking on any strategies involving ‘retirement’ that may prevent them from continuing to work, or that may force them to leave a job that they enjoy.
Clearly, such resistance is a product of terminology, and of history. First, let’s replace the term ‘pension’ with ‘income stream’. Second, note that starting an income stream doesn’t necessarily mean that you have to retire, which is one of the main reasons TRIPs have become so popular.
By starting a transition-to-retirement pension (TRIP) you don’t have to retire to withdraw your super benefits. You can work part-time or full-time or even casually, and withdraw a portion of your super benefits each year.
The major selling point in starting a TRIP is that you can access the tax advantages associated with income streams while you’re still working. Tax advantages include tax-free earnings and tax-free pension income for over 60s, or a 15% pension rebate on pension income for under 60s.
Depending on the strategies an individual uses, it is possible to reduce the amount of income tax that a person pays while boosting the super benefit. For example, one of the more popular TRIP strategies is to salary sacrifice into your super fund up to your concessional (before-tax) contributions cap, and replace that income with tax-free (if over 60) or concessionally taxed pension payments (if under 60). The right combination of salary and super will depend on your salary level, your age, your tax position, the size of your super benefit and your income needs.
You can withdraw no more than 10% of your account balance each year, and you also must have reached your preservation age – anyone born before 1 July 1960 has a preservation age of 55. A TRIP is like any other account-based income stream, except that you cannot withdraw lump sums until you retire, or until you satisfy another condition of release such as reaching the age of 65.
Note: If an individual runs his or her own super fund and chooses to
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Hi Trish, my husband turned 55 in January. We have a SMSF and are going to commence pension phase for him on 1/7/11. He is essentially retired and only worked 4 hours this financial year. But what if he decides to work again in six months time? The SBAP allows for lump sum withdrawals which is very advantageous and would be our first choice as it gives more flexibility. My question is which pension do we set up when he doesn’t know whether he will work again? What happens if you are drawing down a simple based accounting pension and then you work?
Hi Jane – Thanks for your question. I have answered it here:
http://www.superguide.com.au/diy-superannuation/smsf-pension-i%E2%80%99m-retired-if-i-return-to-work-what-happens-to-my-pension
Regards,
Trish