Changes announced in the 2016 Federal Budget will see the shutdown or conversion of tens of thousands of transition to retirement pensions (TTRPs) into full pensions.
An estimated 550,000 TTRPs are currently in place around Australia, used mainly by taxpayers in their late 50s and early 60s who are reducing their work hours, or by low-income earners who are trying to boost their super balances before retirement.
However, many are also used as a tax minimisation strategy by high income earners, as they enable workers over the age of 55 to access their super while still working.
To do this, individuals must salary sacrifice a portion of their income to a tax-free transition pension, which allows them to continue contributing to their super while paying 15 per cent super contributions tax. To supplement their take-home pay, individuals draw income from their TTRP account.
High income earners who don’t need extra cash withdraw money from their pension and pump it straight back in.
Under the Budget’s new rules, earnings generated by transition retirement pensions will be taxed at 15 per cent, rather than being tax-free.
High income earners who transfer money withdrawn from their TTRP directly back into superannuation will now be subject to a $500,000 lifetime limit on after-tax contributions.
The changes mean that TTRPs would only be useful for those who require extra cash while they reduce working hour numbers of for those who can make larger contributions to super than they might otherwise.