- Case Study published on 31 May 2017
- - Transition to Retirement
A client (Sue) recently posed the question “Can I receive a tax-free pension income after turning 60 whilst continuing to work, given the recent changes to pension income streams for those over the age of 60 who are still working?”
Sue is currently employed on a full-time basis as a teacher. She is also an office holder in her husband’s profitable business. The company pays a dividend to Sue each year as well as topping up her Superannuation to the Maximum Deductible Contribution limits of $35,000.
Sue is planning on retiring at age 60 from her job as a teacher. She would like to know if there is a way she can receive a tax-free pension income stream from her superannuation arrangements despite continuing to work in her husband's business.
Please click here to better understand Transitional retirement income streams (Also known as Transition to Retirement)
Whilst a Transition to Retirement strategy could be implemented once a person had turned 55, the real benefit was the tax-free pension income stream after turning 60 when the income paid was tax-free. (Between the ages of 55 and 60, Transitional retirement income streams were concessionally taxed at 15%)
Changes to the way in which a Transitional retirement income streams is taxed
From 01/07/2017, the tax-free income status (for those age 60 and above) of a Transitional retirement pension income stream is changing. From this point onwards, the pension income stream will be taxed at 15%. This is a significant change.
Understanding the definition of “Retirement” (A condition of release).
The definition of retirement is dependent on the person's age. The following summarises this.
Where someone has reached preservation age (55+ but less than 60)
- An arrangement under which the member was gainfully employed has come to and end, and
- The trustee of the fund is reasonably satisfied the member intends never to again become gainfully employed for 10 hours or more each week.
Where someone is age 60+
- An arrangement under which the member was gainfully employed has come to an end,
And either of the following circumstances applies;
- The member attained that age (60 or greater) on or before the ending of the employment, OR
- The trustee is reasonably satisfied the member intends never to again become gainfully employed for 10 hours or more each week.
Outcomes for Sue
Based on the above rule, Sue is able to retire from her teaching position (having reached age 60) and convert all of her accumulation phase Superannuation into a pension income stream that will pay a tax-free income to her.
This, despite her continuing to work for her husband's company, get paid a wage and continue to have Superannuation contributions made on her behalf.
It is important to note all Superannuation contributions accumulated post her retirement from her teaching position are not accessible until Sue has met a further condition of release.
Why not call us today?
We would welcome the opportunity to meet with you to discuss how this strategy could help you achieve your retirement goals. We can be contacted by phone on 03 9596 7733 or via email.