TRANSITION TO RETIREMENT 

What is meant by “Transition to Retirement”?

As you come nearer to retirement you can put a strategy in place to reduce the number of hours you work while maintaining the same income. This transition to retirement strategy involves drawing a pension from your super fund. Anyone who has reached the preservation age (which is currently 55 years old) but under the age of 65 is able to enact this strategy by taking out a non-commutable allocated pension.

What is NCAPs?

NCAPs stands for Non-commutable allocated pensions. NCAPs have become popular since 2005 when the federal government’s transition to retirement rules were announced. NCAPs allow Australians of and over a particular age to access their super benefits before they permanently retire from the workforce.



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Benefits of the Transition to Retirement strategy?

There are a number of benefits which make this strategy appealing to Australians. For one, you gain the opportunity to maintain your income and boost the saving you have for retirement through salary sacrifice (also known as an income swap strategy). Or you can supplement your income while reducing the number of hours you work to ease into retirement.

How does this strategy work?

There are two main parts involved in the Transition to Retirement income swap strategy. The first is to arrange a salary sacrifice, which is directing a percentage of your before-tax salary into your super fund. You can then swap a portion of your income with a regular payment or ‘pension’ from your super savings.

Simple! Then you have two sources of income which equate to the same amount as if you were working full-time. Except now you will only be working part-time!



OUR PEOPLE

Our advisers are fully qualified experts in personal insurance and financial strategies. We are committed to ongoing professional development and education to give you the most up to date technical knowledge and advice, specific to your needs. Our experience and specialist knowledge helps you make sense of all your options, so you can choose the best solution. We observe a strict & comprehensive Code of Professional Conduct are subject to stringent compliance
and audit guidelines.


Can I save on tax doing this?

The NCAP strategy results in tax being calculated differently. This is because pension payments you receive from your super attract a lower tax rate than the tax applied to your income.
Another benefit is that your investment earnings in an NCAP are tax free.

Put simply, by swapping part of your salary for the pension you can receive the same amount of income while still increasing your superannuation savings.

Things you’ll need to consider

You need to find out if the Transition to Retirement strategy is right for you and how it aligns with your financial goals. There are a number of things to think about including;

• Your fund types and whether the Transition to Retirement pension are available to you
• Your plan for retirement. Do you want to reduce your working hours or increase your super?
• Your income needs. You will need to completely understand how much you spend to know how much you can draw from your super
• Your social security entitlements. These can create implications for your pension and other entitlements
• Tax implications
• Your life insurance. If you have life insurance through your super, how will the Transition to Retirement Strategy impact on it?

These areas can all be analysed and then explained to you by your financial advisor.


OUR PEOPLE

Our advisers are fully qualified experts in personal insurance and financial strategies. We are committed to ongoing professional development and education to give you the most up to date technical knowledge and advice, specific to your needs. Our experience and specialist knowledge helps you make sense of all your options, so you can choose the best solution. We observe a strict & comprehensive Code of Professional Conduct are subject to stringent compliance
and audit guidelines.

Putting this strategy in action

You can boost your savings in your superannuation with the Transition to Retirement strategy. But the success of this strategy will depend on how you balance salary sacrifice and the amount you’ll receive as a pension. If you begin withdrawing more money than you place into your super, you won’t be maximizing your savings.
To find out if this strategy will work for you and how to strike the perfect balance, get in contact with us at Leap Financial.

Claire’s Story

Many people have used the transition to retirement strategy to work less while maintaining their level of income and boosting their super savings. If you want to see how the strategy works, look at Claire’s story.
Claire was 60 years old with a gross salary of $60,000 per year when she began the transition to retirement strategy. She chose to use her entire super savings, a total of $200,000, as her non-commutable allocated pension and draw the maximum pension amount, $20,000. This meant she could make a salary sacrifice of $24,647 per year without seeing any difference in the amount of money she had available in her account as before she started transitioning to retirement.
After a year, Claire had paid $984 less in tax. She had increased her superannuation balance by $984. The investment earnings on the $200,000 in her pension is not taxed. If the funds had remained in her super account, they would have been taxed 15 per cent.
Start planning your strategy today with Leap Financial.

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