After a lifetime of working, are the green pastures of retirement calling? Perhaps you’re not sure whether you’d like to retire permanently and enjoy doing part-time or casual work? If that sounds like you, then you may like to consider a transition to retirement pension as a way to access your super without having to leave your job or retire.
While individuals generally cannot access their super until they retire from the workforce or reach the age of 65, a member of a regulated super fund who has reached their preservation age can access a transition to retirement income stream. Preservation age depends on the year you were born and ranges from 55 (for those born before 1 July 1960) to 60 (for those born after 30 June 1964).
The income stream is non-commutable and subject to annual minimum/maximum withdrawal limits. The minimum annual payment amount is based on minimum pension standards for those under 65 years (but at preservation age), which is usually 4% of the account balance at the start of each financial year, however, it has been reduced to 2% for the 2019-20 and 2020-21 income years due to COVID-19. The maximum annual payment limit of 10% of the account balance remains in place.
A few things to note if you’re considering commencing a transition to retirement income stream, one, it is non-commutable, which means it cannot be cashed or commuted to a lump sum while you’re still working, unless you have satisfied a condition of release with a “nil” cashing restriction. Two, it is not compulsory for all super funds to offer their members these non-commutable income streams.
So, if you’re considering commencing a transition to retirement pension, it’s best to speak to your super fund to find out whether their trust deed allows for benefits to be accessed when a member reaches preservation age, without needing to retire and whether they allow for the payment of non-commutable complying or allocated pensions.
In addition, anyone whose super is in a MySuper product will need to switch to a separate choice product if they wish to commence a transition to retirement pension. This is most likely to affect individuals who have not chosen a fund, and have elected to go with the default fund of their employer. MySuper products are the only products eligible as default super funds since their introduction.
Further planning opportunities may also be available to those individuals that are able to commence a transition to retirement pension, including combining that with an effective salary sacrifice arrangement. The net of effect of that could result in less overall tax being paid on pension income, although results will depend on individual circumstances and the marginal tax rate.