SUPERANNUATION & RETIREMENT – A New Condition of Release
From July 1 2005, superannuation schemes are allowed to release superannuation benefits to a member who has reached their preservation age (55 to 60 depending upon the person’s date of birth) provided the benefit is taken in a restricted manner as a pension.
This new condition of release will give members access to their benefits once they reach preservation age, even if they are still wotking.
Under these measures there is no work test and there is no capping the amount of benefits a person can access.
Members using these new rules can use existing pension products such as allocated pensions or market linked pensions.
This new rule does not change the existing conditions of release on superannuaiton benefits, it merely adds an additional condition of release added to those already existing. The benefits may only be taken as a non-commutable income stream.
The new condition of release provides additional flexibility to workers moving into the transition to retirement phase, enabling them to supplement a reduced income or maximise their retirement benefits by drawing a tax-effective pension income and then salary sacrificing.
This option does not have to be offered by all superannuation funds. However, large superannuation funds have already launched products to take advantage of the new rules.
Effect of this change:
You can reduce your wages by salary sacrifice into your superannuation fund and withdraw a similar amount as an annuity from your superannuation fund. Therefore keeping your disposable net income the same and saving tax on the sacrifice amount.
Example: Keith is 60, earning $100,000 per annum
– accumulated benfits in his superannuation fund- $550,000
Nicole, his wife is 59, earning $30,000 per annum
– accumulated benefits in her superannuation fund- $100,000
Both intend to work for another 5 years, they require $48,000 per annum after tax to live on.
To achieve the desired result:
A: Keith salary sacrifices $90,000 into his superannuation fund B: Commences allocated pension to supplement income
Salary $10,000 $91,740
Superannuation $90,000 $8,200
Total $100,000 $100,000
Tax Savings $9,346 per annum
UPDATE: May 2006 Budget now restricts Super Salary Sacrifice to $50,000