Transition to retirement and salary sacrificing

The Transition to Retirements Pensions measure (read our previous article) enables people to access their superannuation benefits as a non-commutable (cannot be converted to a lump sum) income stream provided they have reached preservation age (currently 55). It enables people to supplement their income with monies accumulated in their superannuation fund.

Its aim is to encourage experienced workers to remain in the workforce at a time of skill shortage and it is very suitable for owners of small and medium size enterprises. It is also available to employees who are not owners of businesses.

The main benefits of this measure are:

	If a non-commutable allocated pension is taken, the income stream can be stopped at any time and rolled back to accumulation phase retaining its preserved status. This provides a lot of flexibility.
	Once a person receiving an allocated pension reaches 60 years of age, the pension becomes tax free
	Once a person retires or reaches age 65 (or meets another condition of release), they have the option to commute a non-commutable allocated pension, and access their full benefits
	There is no work test rule applied and
	There are no limits to the amount of benefits able to be accessed as a non-commutable income stream.

The advantage for business owners is that a salary can continue to be taken from the business entity and sacrificed into a superannuation fund. The tax on the salary can therefore be reduced because the salary sacrifice component into the superannuation fund is taxed at 15%. This provides the person with a significant tax saving whilst increasing the superannuation nest egg.

Published : 8 January 2008