15 March 2016

It’s that time of year again when pre-Budget media speculation is proving very hard to escape. Every day we are told what the Budget may (or may not!) have in store for us which can be perplexing when considering preemptive pre-Budget strategies. However, for the reasons outlined below, there is one rumour that we think deserves careful contemplation – that the transition-to-retirement (TTR) scheme is facing the Budget chopping block.

Although we don’t necessarily believe that the initiative will be scrapped, nor do we support its demise, if you are aged 55 or over (as at 30 June 2015) we do strongly suggest you consider activating this pension stream now, just in case in May Morrison’s axe does fall.

The TTR initiative was originally introduced in 2006 to help members access their superannuation in the form of an income stream without having to meet the ‘full retirement’ condition of release. The aim was to allow older workers to reduce their working hours without reducing their income by topping up their part-time earnings with a regular stream from their super savings.

Although some limitations do apply, including withdrawing up to a maximum of 10% of the balance each financial year and the restriction of lump sump withdrawals, the implementation of a TTR stream can deliver a number of financial benefits to members.

If aged between 55 and 60, income from a TTR pension is taxed at your marginal tax rate less a 15 per cent tax offset. If over 60, it’s tax free. Interestingly, current TTR rules actually allow you to continue to work full-time and access your TTR pension by salary sacrificing a portion of your income, allowing you to take advantage of the greater tax benefits. In addition, the investment earnings from the assets backing your TTR pension are tax-free.

Now, if the rumour remains just that and the TTR scheme survives the Budget and you do not wish to continue to draw a TTR income from your super savings, then you can simply deactivate it.

So, if you are over 55* we urge you to consider activating your TTR pension stream now because once the Budget is handed down in May it may be too late.

If you would like to find out how you can activate your TTR income stream, please feel free to get in touch on 07 3391 5055 or by emailing advice@mgdwealth.com.au.

*Members are only eligible once they have reached preservation age (55 if born before 1 July 1960).

Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.