In an economy where tax breaks are far and few between, it is surprising that so few who are eligible to take advantage of a transition to retirement (TTR) arrangement actually do so.

TAX BREAK FOR WORKERS AGED 56+ NOT BEING UTILISED

In an economy where tax breaks are far and few between, it is surprising that so few who are eligible to take advantage of a transition to retirement (TTR) arrangement actually do so.

In fact, a report released by the Productivity Commission in July 2015 noted that whilst exact figures were difficult to ascertain in relation to the use of TTR pensions, using a number of data sources and assumptions, the figures indicated only around "5 per cent of those aged 55-65 years may have been using transition to retirement pensions in 2011-12".

So what is TTR all about and more importantly, how can it help you to save tax?

The TTR arrangement was designed to assist pre-retirees move from full-time to part-time work and maintain their income level by enabling them to draw down a pension from their super before they actually retire.

It can however currently be used as a legitimate tax-saving measure by those aged 56 to 65 years who are in the workforce and earning a wage with a personal tax rate of greater than 15%.

In brief, this strategy would involve salary-sacrificing a portion of your wages into a superannuation account and drawing between 4% to 10% from your TTR pension account.

You then reduce your tax liabilities* as:

(a) The amount being salary-sacrificed is taxed at 15% (the superannuation tax rate) instead of your personal tax rate (which could be up to 45% plus applicable levies),

(b) In most cases, you pay less tax on the TTR pension income than you would on the same amount of wages up until age 60,

(c) Once aged 60 years, the TTR pension income will actually be tax-free in your hands, and

(d) In addition, the earnings generated from the investments held within your TTR pension account are not subject to tax.

 

Of course, a TTR strategy will not suit everyone's circumstances, but if you would like more information about how this arrangement could possibly assist you to minimise your tax liabilities, then please contact our Head of Wealth Management division, Manish Sundarjee, on 03 9836 2900 or at manish@kidmanspartners.com.au.

*Based on current legislations and applicable tax rates.