Your Money

Should I take up a transition to retirement pension?

by Peter Switzer

I am 55 and have been told that it could be in my interest to go onto a transition to retirement pension but I am not intending to retire until at least 65 and I’m not sure I want to be perceived as a ‘pensioner’ when I hold down a very responsible position leading around 35 people.

I know a lot of people look at the transition to retirement pension (TTRP) this way but it might be an economically wise decision to take on your ‘pensioner phobia’. There are a number of reasons why the TTRP should be considered by those who are ‘lucky’ enough to be 55 or more. The most attractive aspect of drawing a pension which can be no more than 10 per cent is that it means those assets or investments that stand behind the pension can be isolated and will not be taxed. Consider this, if you had $1 million in your super fund and you earned $100,000 in interest and dividends, then this would be untaxed as you have started a TTRP. So, by simply beating your ‘pensioner phobia’ you could cut your super tax bill down by $15,000 and it means there is more in your pension account that can be rolled over and invested on your behalf! Another advantage is that your pension will be taxed concessionally, which means the income stream will be taxed at your marginal tax rate minus a tax offset of 15 per cent. Now imagine if you had $1 million in your fund, then this $100,000 or 10 per cent could be your income to match your income from work and that would mean you could bump up your salary sacrifice amount, which in total would be a tax-effective way to get more money into your super fund, while reducing the tax on your pension-linked assets/investments. There are other advantages of the TTRP and I think this underlines why financial advisers can often be very rewarding sidekicks in a person’s life.

Published on: Thursday, April 26, 2012

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