The Government’s Transition to Retirement (TTR) policy allows anyone who has reached preservation age (55 for those born before 1 July 1960) to access their super

as a non-commutable income stream (NCIS) without having to quit the workforce.

A non-commutable income stream is simply a type of pension that doesn’t allow you

to access the capital.

If a person wants to reduce the number of hours they work, this strategy can be used to generate supplementary income. Likewise, it can be used by someone contemplating a late life career change, such as starting a new business, to derive a steady income during the start-up phase.

The TTR rules have a further application of allowing a person who continues to work full-time to boost their super savings. This approach incorporates other strategies, such as salary sacrifice and making deductible contributions to super.

Salary sacrifice is a workplace arrangement whereby the worker forgoes part of his/her gross salary in return for additional employer super payments. Meanwhile, self-employed and substantially self-employed individuals (or others who don’t receive employer super contributions) can claim a tax deduction for personal contributions made to super.

While income is directed into boosting accumulation savings, existing super is used to commence an NCIS, ensuring the person receives sufficient income to cover their requirements.

What’s the benefit? Concessional contributions, such as salary sacrificed

amounts, are taxed at a maximum of 15%* as opposed to your marginal tax rate that

depending on your income could be as high as 45% plus Medicare levy.

At the same time, super income streams receive favourable tax treatment.  While

the capital used to support your pension is held in a tax-free environment (ie no

tax is payable on fund earnings), pension payments receive preferential tax treatment.

Under the Government’s new simpler super system, pension payments made to people

60 or older are tax-free from 1 July 2007. Pension payments to those aged between

55 and 59 are divided into two components – a taxable portion and tax-free amount.

Depending on your circumstances, you may be eligible for a deductible (tax-free)

amount. The taxable portion is subject to your marginal tax rate; a 15% tax offset

applies to these monies, thereby reducing the tax payable.

By implementing a TTR strategy, pre-retirees may also become eligible for other tax concessions, such as the Low Income Tax Offset. Income from a super income stream may also attract a 15% tax offset, which makes it more tax-effective than salary or business income. As with many tax strategies, the higher your marginal tax rate, the higher the savings.

If you are 55 or older and plan to keep working, your financial adviser can help you

evaluate whether a TTR strategy may be of benefit to you. To retain flexibility in case of a change in plans, it’s important to choose an NCIS that can be commuted back into super or cashed out tax-free when you retire.

* Concessional contributions are taxed at 15% within the cap

and 46.5% above it. The concessional cap for 2007/08 is

$50,000, though a transitional rule allows individuals 50-plus

to contribute $100,000, taxed at 15% until 30/6/2012.

Source: Zurich Australia Limited