Transition to retirement income streams were introduced from 1 July 2005 to provide greater flexibility to those approaching their retirement. The structure allows individuals who have reached preservation age to access their superannuation savings by way of a non-commutable income stream without having to permanently retire from the workforce. You can basically create an income stream from your super fund to top up any income you’re receiving from full or part time work, but you cannot take a lump sum. With the extra superannuation income coming in, you can afford to salary sacrifice more or your salary to reduce the amount of tax you pay. This tax strategy allows people on the average wage cap the amount of tax they pay at 15% instead of the 30% marginal rate.
Retirees having commenced an account based pension may cease the income stream so that the assets of the smsf revert to the accumulation phase of superannuation. The assets could then be accessed at a later date as a new transition to retirement pension or other pension once permanent retirement occurred. Alternatively, the assets could be left in the accumulation phase indefinitely.
In the situation where an account based pension was commenced as a transition to retirement pension during the course of the pension, it would not be commutable until the member had retired permanently or reached age 65.
Setting up a transition to retirement income stream is a relatively simple exercise, and simply requires an application to be submitted to the trustees of your super fund. If you have a self managed super fund, you should seek advice from a professional accountant to set it up correctly. For those planning to cease work in the next few years, a transition to retirement pension could save you thousands in tax so it is worth seeking expert advice on the matter.