Fear of legislation changes limiting uptake of TTR strategies

Fear that the Government may later change the rules surrounding transition to retirement strategies is limiting the uptake of the opportunity, according to HLB Mann Judd.

A number of pre-retirees may be missing out on the benefits of transition to retirement strategies due to a lack of understanding and level of suspicion about them, according to Michael Hutton, wealth management partner at HLB Mann Judd.

Hutton has found that some clients are hesitant about entering transition to retirement arrangements as they are concerned about any potential impact on their financial position if the rules are changed.

“Older working Australians have seen superannuation changes almost annually and the constant fine-tuning, refinements and changes that are regularly announced have made them deeply suspicious that things can change yet again with no warning,” Hutton said. “This is despite the fact that both major political parties have supported the transition to retirement arrangements.”

Hutton said the tax benefits of the arrangements can be significant and “it is foolish to ignore them”.

“It’s somewhat like being a member of a lottery winning syndicate, but not bothering to claim your share of the prize,” Hutton said.

Transition to retirement strategies allow people over the age of 55 years to sacrifice a portion of their salary into superannuation contributions, before drawing down a pension from their super fund to make up the difference in net income. By using the strategy, income tax is replaced with contributions tax, while pensions are taxed at low, and sometimes tax-free, rates. The earnings in the superannuation fund paying the pension are also tax-free to the pension fund.

“A net effect of this can be that somebody approaching retirement can reduce their working hours while maintaining their income level, or work the same hours but increase their superannuation balance,” Hutton said.