Pre-retirees face super obstacles

PRE-retirees will be among the most affected by the 1 July superannuation changes and they need to be aware how they are impacted as the new financial year draws closer.

One of the most significant changes is the removal of tax exemptions on earnings to Transition to Retirement (TTR) income streams. If individuals fail to adequately reassess their financial situation, they could pay additional taxes on superannuation savings – a mistake many retirees cannot afford to make.

A TTR income stream is a series of regular payments from superannuation savings that is available before retirement for people in their late 50s and early 60s. The TTR income stream provides a method for pre-retirees to reduce their working hours and access a superannuation income stream that is up to 10 per cent of the account balance per annum.

Currently, earnings in TTR incomes streams are tax-free. However, from 1 July 2017, earnings will be taxed at up to 15 per cent in line with superannuation accumulation tax rates.

What options do you have?

Because of this, TTR income streams will be a less attractive option for some pre-retirees, however the changes will affect people in different ways. For instance, if a member has turned 65-years since they began their TTR pension, they have the ability to switch to a tax-free account-based pension.

However, if they do not convert the pension before July 1, they will be subject to the removal of the exemption on earnings on their TTR income stream. For people in this group, it’s best to beat the clock and consider getting the paperwork sorted to protect your future savings when you’ll need them most.

For those still working and drawing a TTR pension, this strategy will still deliver the benefit of allowing the reduction of working hours, however, it might not be as beneficial as it has been in the past regarding tax. If you’re in this situation you should consider your own circumstances and are encouraged to seek advice before making changes to existing strategies.

In all cases, superannuation plans need to take into account specific circumstances, considered on various levels.

For more information, phone Matthew Khourey at MyState Wealth Management on 1300 651 600 or visit www.mystate.com.au/wealth.

Information is current as at 20/03/17. This is general advice only, before making any decisions please speak with a MyState Wealth Management Financial Planner.