Kiwipaul

I've been looking at the advantages and disadvantages of starting a Transition to retirement pension once you are over 60.

ADVANTAGES

Once over 60 your TTR pension is totally tax free (previously taxed at 15% within the fund). So even if you don't need the pension it seems to me sensible to start a TTR withdrawing the min amount which will mean the fund no longer has to pay tax at 15% on it's income.

You can still contribute more funds to the pension increasing it's value whilst also receiving this pension.

NOT starting a TTR mean your sup fund continues to pay tax on it's income at 15%.

The money you receive from this pension is tax free and you don't need to declare it on your tax return.

DISADVANTAGES

I cannot see any??????

Discovery

Well there is a concessionary contributions cap in place and this does limit in a way the tax advantages a TTR member will get from salary sacrifice.

Kiwipaul

This is the bit I don't understand.

If you transfer all of your fund to a policy and withdraw the min allowed. Does the policy value still increase (due to tax free income it generates) or is it like a lump sum which is then paid out over a number of years.

Also isn't the fund (policy) still investing (in whaterver option you choose) to generate income and capital gain??

I've read that when you start a TTR you have to spilt your fund into a payout section (totally tax free) and an accumalation section (taxed at 15%)

NickyC

There are two phases to superannuation - 'accumulation' and 'pension'. Funds are kept separately.

To start a pension, money from your super fund will need to be moved into a pension account. You don't have to move 100% of the super fund - you can leave some behind. You cannot increase the funds in the pension account (once set up) by adding more contributions, but the value can still grow due to investment income.

If you want to continue to contribute to super through earnings after you've started a pension you either add to the original super fund or set up a new one.

Kiwipaul

I don't see the point in leaving any behind (except a notion amount to maintain the option of re contributing) as any left behind will be taxed at 15% and I assume it will grow the same as the accumulation part grew but with an extra 15% (due to no tax). Or am I missing something.

Andrew Williams

Paul you have pretty much covered things, it is mainly all about the tax savings.

In actual fact a Pension can be utilised when someone reaches their preservation age (currently age 55) http://www.ato.gov.au/content/12333.htm although income is not tax free between preservaton age and age 60 a 15% tax offset generally applies http://www.ato.gov.au/superfunds/con...tm&page=12&H12

The issue around having to draw out a certain amount is of course that if the net earnings are not more than the amount being withdrawn the capital is being eroded.

However for people that do not require the income (people still working say) then the pension income can be used to assist in tax efficient contributions back to Super via salary sacrifice or a deductible contributon if self employed (so long as they are eligible to contribute of course) http://www.bt.com.au/super-and-retir...t-strategy.asp

The strategy is becoming less effective with the governemnt reducing the concessional contribution caps $50,000 to $25,000 however is still useful for overall tax savings.

One way to get around having to sell down units in managed funds in falling markets at depressed prices to pay pension payments is to put a few years worth of pension payments into cash, this helps with market volatility.

There is one big potential disadvantage and that is for people and/or their partners that might be receiving certain Centrelink benefits.

Centrelink ignore money in Superannuation if a person is under Age Pension age, this of course helps if they have to be means tested to receive benefits.

Monies in an Account Based Pension become visible (although the income is treated favourably due to allowing for a deductible amount unlike monies in the Bank say) and this could be of detriment when it comes to assets testing.

Andy