Transition to Retirement Pension

A Transition to Retirement Pension is an income stream paid to a member who has reached their preservation age (currently 56 years of age). 

Eligible individuals can begin receiving an income stream, irrespective of whether they have finished work or not.  Note that once you retire or turn 65, your pension is no longer considered a Transition to Retirement Pension.

Currently, the investment earnings from superannuation assets used to fund a Transition to Retirement income stream are not taxable.  But from 1 July 2017 this changes and these earnings will be taxable in the fund at the regular superannuation tax rates. 

If you’re impacted by this change you will need to determine whether it makes sense to continue drawing your pension while continuing to work.  It may be best not make any changes or it may be financially beneficial to cease your pension.

Balances over $1.6 million

If you have more than $1.6 million in the “pension phase” of your fund you will need to move the excess amount from the pension part of your SMSF to the accumulation part of your fund. 

You can still continue to have more than $1.6 million in superannuation so long as it is held in accumulation, rather than in pension phase.

Be aware that penalty tax rates will apply to amounts in excess of $1.6 million, although trustees have a number of months after 30 June 2017 to rectify excess positions.

Another key transitional issue if you have a pension balance in excess of $1.6 million is the ability to refresh the cost base of assets in your fund.  Trustees of SMSFs with pension accounts over $1.6 million can revalue assets to their market value on 30 June 2016.  If you have a SMSF with large unrealised capital gains, this is may be a good opportunity to reduce future capital gains tax.

What else should you know?

Over the next four months Hewison Private Wealth advisers are reviewing the composition of our client’s SMSFs to ensure all funds are well positioned to cope with the new superannuation rules.

Can we help you?

If you would like to discuss your existing SMSF strategy or if you’d like to consider starting up a tailored SMSF fund please call us and make a time to see one of our advisers. It’s never too early or too late to begin making your super work harder for you.

Please note: The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser. Please contact Hewison Private Wealth for more information.