All future employer and member contributions will continue to be paid into your Accumulation 1, Accumulation 2, or Personal Account. Operating a Flexi Pension will not impact any external insurance cover you may have through your account. Your cover will continue provided you continue to meet the requirements and your accumulation balance meets the minimum requirement.
Transition to Retirement. For members who meet the eligibility criteria, there are generally two ways to use TTR: Keep working and boost your super. Even if you are not contemplating retirement, by establishing a TTR pension you can maintain your current level of work, access pension income and salary sacrifice more into super.
The strategy can be structured so that there is no effect on your take-home income. The boost in your super is a result of the tax benefits from salary sacrificing into super. Transition gradually into retirement. You can gradually reduce your work hours and ease into retirement, while supplementing your income from traditionally preserved superannuation benefits.
The eligibility criteria for transition to retirement A TTR pension can be started once you reach your preservation age. TTR pensions are also referred to as non-commutable pensions, and lump sum withdrawals are not generally allowed.
This strategy can be used to either:. Good to know: Transition-to-retirement pensions go by several acronyms.
Your preservation age will be between 55 and 60, depending on your date of birth. You must also be a member of an accumulation fund, not a defined benefit fund. The taxation of TTR pensions has always been one of their key attractions.
While they are still tax effective for many people, they lost a little of their shine after a change to the tax rules a few years back. However, these earnings are still exempt if you are over What has not changed is the taxation of TTR pension income. If you are 60 or older, in most cases your pension payments will be tax free.
To learn more, see SuperGuide article Did tax kill the transition to retirement magic pudding? Even so, depending on your personal circumstances TTR pensions still have much to offer. They can help you:. The bottom line is an overall tax saving and a substantial boost to her retirement savings. When Jill turns 60 and her TTR pension is tax free, her tax savings and super boost will be even higher.
These are ballpark figures. We have assumed an investment return of 7. As the example above shows, the financial benefits of a TTR strategy may be marginal before you turn Here are some things to keep in mind:. For more on the co-contribution and other ways to add to your super, see SuperGuide article: What contributions are best for me? For high-income earners, there may be limited scope to make additional concessional contributions. You start a TTR pension by transferring some of your super from your accumulation account into a pension account.
But the funds in your TTR pension account will count towards your transfer balance cap once you do retire. At least one withdrawal must be made each year. Learn more about the minimum pension payment rules including calculator. Rather than set up a TTR pension you can start a normal super pension, which has added benefits outlined below. A TTR pension automatically converts to an account-based pension when you meet a superannuation condition of release, such as retiring or reaching age You can also transfer your pension account funds back into your accumulation account at any time.
The rules are complex and not complying can be costly. This could include a mix of:. All three of these asset categories can be transferred to support a TTR pension, but they must be chosen in the order outlined above.
Therefore, it can't count towards the minimum annual pension amount. In order to meet the minimum annual pension requirements up to the time the pension ceases as a result of a full commutation, you, as trustee, should ensure the required minimum annual pension amount has been paid as a separate payment or payments prior to the lump sum payment being made. A transition to retirement income stream TRIS needs to meet the standards of an ordinary account-based income stream.
This is unless the member has satisfied a condition of release that has a nil cashing restriction. Where a fund exceeds the maximum annual payment limit for a TRIS in a financial year, the super income stream is taken to have ceased at the start of that year for income tax purposes. Once a complying super fund starts to pay a retirement phase income stream to a member, it may be entitled to exempt a portion of the income earned from the fund's assets that are supporting the income stream.
This is referred to as exempt current pension income ECPI and applies until the pension ceases. From 1 July , a TRIS where the member has not met a condition of release with a nil cashing restriction will not be considered in the retirement phase. ECPI also applies to certain retirement phase products such as deferred lifetime annuities which are not currently paying a benefit.
When starting a retirement phase income stream, the trustee will need to consider which method they should use to calculate the fund's ECPI. Should an actuarial certificate be required, it must be obtained by the trustee before lodging the Self-managed superannuation fund annual return SAR. If a trustee has started paying a pension to a member and they receive a contribution for the same member, they can't add it to the member's pension account.
A contribution received after a pension has started cannot be added to the capital supporting the pension. All contributions intended to form the capital of the pension must be made before the pension starts.
If a fund fails to meet the required super pension standards for an account-based pension in an income year, the super income stream is taken to have ceased at the start of that income year for income tax purposes.
Any payments made during the year will be super lump sums for income tax purposes and lump sums for SISR purposes. Where the underpayments relate to a retirement phase income stream, this also means the fund will not be entitled to treat income or capital gains as ECPI for the year. When a new super income stream commences, you as trustee will be required to recalculate the tax-free and taxable components of the new pension. One of the most common reasons for not meeting the pension standards is failure by funds to meet the minimum annual pension payment requirements.
There are limited circumstances where the Commissioner of Taxation will allow a pension to continue, even though the trustee has failed to pay the minimum amount of pension. These highlight the conditions to satisfy to allow a pension to continue if a fund fails to meet the minimum pension payment requirements in an income year.
A super income stream ceases when a member or a dependant beneficiary requests to fully commute their entitlements to future super income stream benefits to a lump sum entitlement takes effect.
A request to fully commute a superannuation income stream takes effect as soon as the trustee's liability to pay periodic superannuation income stream benefits is substituted with a liability to pay a superannuation lump sum to the member or dependant beneficiary. A payment resulting from a full commutation can't count towards the required minimum annual pension payment amount. The taxable and tax-free components of the commutation payment will have the same proportions as those determined for the separate interest that supported the pension when the pension commenced.
If a member fully commutes a pension and retains the amount of the commutation lump sum within the fund, you will be required to recalculate the tax-free and taxable components of any new benefit subsequently paid from the fund. On 1 November Andre advises all trustees of the Summa SMSF, in accordance with the governing rules of the fund that he wishes to fully commute his account-based pension.
As the super income stream ceases at the time the full commutation takes effect, eligibility for ECPI also ceases at this time if the pension was in retirement phase. There may also be CGT consequences as a result of the disposal of assets after this time.
A full commutation can be paid in-specie. The payment that results from a full commutation is a lump sum for the purposes of the superannuation laws. Trustees will need to consider the governing rules of the fund and any CGT implications associated with the transfer of assets in lieu of cash. A pension ceases as soon as a member in receipt of the pension dies. That is unless a dependant beneficiary is automatically entitled to a reversionary pension.
If a super income stream automatically transfers to a beneficiary on the death of a pensioner a reversionary pension , you must ensure that the minimum pension payments continue to be made.
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