transition to retirement


Overview

This strategy is vastly more than a simple supplementation of retirement income for those undertaking part-time work close to retirement. It provides an opportunity to enjoy substantial tax efficiencies. Once a transition to retirement pension is commenced, the fund's ordinary assessable income on assets backing that pension becomes tax free. The income stream benefit is concessionally taxed before age 60 and after that becomes tax free. There is a third advantage in that salary sacrifice contributions from employment income are retained with a 15% contribution impost rather than the top marginal personal tax if received as salary. This has become a mainstream and accepted tax minimisation strategy.


Regulatory Requirements


The requirements to be met include:

must have reached preservation age to start a transition to retirement pension, i.e. 55 for those born before 1/7/1960
pensions started before 1/7/2007 are deemed to have met the requirements
new account based pension (ABP) must have a 10% of account based maximum pension limit (must pay a maximum pension of 10% of its assets)
contributions must go to an accumulation account and not directly to the pension account (otherwise it would vary the tax free proportion)

The Calculators


There are two calculators: a long duration projection calculator and an individual tax year calculator. The second focuses with a far higher level of detail to squeeze every drop of optimisation advantage from a single tax year. The calculators search through all the different contribution levels to find the one that is most tax efficient.


Some of the features of the Projection Calculator are:

shows the gains in retirement assets from tax efficiencies of the transition strategy
shows the impact on retirement assets from various work and supplementation scenarios
shows the impact of a sweep and recommencement strategy
shows limitations imposed by contribution caps
produces before and after tables and graphs
allows control over assumptions used in the calculations
caters for commencement part way through a tax year
allows for both concessional and non concessional contributions

The Tax Year Calculator features include:

optimisation of the level of pensions drawn down between the minimum and maximum allowed
sets out an implementation guide for income stream drawdowns, PAYG tax and salary sacrifice amounts for the tax year
calculates the new exempt and taxable components from the sweep and recommence
allows for spouse contribution splitting

Download Long Duration Projection Calculator >

Download 2007/8 Tax Year Calculator >

Download 2008/9 Tax Year Calculator >