- Published on 28 Jan 2016
- - Transition to Retirement
There have been calls from members of a number of groups (including the SMSF Owners Alliance and Chartered Accountants Australian and New Zealand) to tighten the rules surrounding Transition to Retirement strategies.
Transition to Retirement allows working Australians over the age of 56 the opportunity to contribute pre-tax dollars into their superannuation arrangements and pay 15c tax on the dollar rather than their marginal tax rate for up to $35,000 of annual income.
When workers reach age 60 the scheme becomes even more valuable as they pay no tax on earnings or withdrawals.
Transition to Retirement was introduced as a way of allowing working Australians a chance to reduce their hours yet maintain their income, effectively helping Australians begin the transitioning period to their retirement.
However, there are no tests in place to monitor whether a person has reduced their working hours or not. Introducing a test where workers had to prove reduced working hours would ensure Transition to Retirement strategies are being used for their intended purpose, not as a vehicle for reducing tax on annual income.
Currently the only test in place is for workers over age 65 to prove they are working in order to be eligible to make super contributions.
As the Transition to Retirement scheme becomes more popular, it is interesting to note payments of Transition to Retirement benefits from Self-Managed Super Fund’s more than doubled from $1.7 billion in 2010 to $3.8 billion in 2014, only four years later.
According to superannuation laws, any person who works more than 30 hours per week is regarded as being employed full time.
While the wealthy, high income earners have the most to benefit by only paying 15c tax on income as opposed to their marginal tax rate (which can be as high as 49c in the dollar), a Transition to Retirement benefits Australian workers of all occupations and financial positions.
LifeTime Financial Group specialises in Transition to Retirement strategies tailored to meet your needs and we have helped many clients improve their working arrangements and retirement outcomes through this fantastic government initiative.
If you are curious as to how you could benefit from your own Transition to Retirement strategy, please get in contact with our office.