Q. I have just turned 53 and have been planning to do a TRP – transition to retirement plan – arrangement in the coming years. There are rumours this scheme is to be scrapped. Is there anything I can do to salvage my plans?
A. One of the great certainties of Superannuation is that from time to time there will be changes in the rules. With this in mind it is important to focus on the key principles that should apply to how you utilise the Superannuation system.
The primary role of Superannuation is to provide for you in retirement. Superannuation Tax benefits or access arrangements such as TRP should be seen as incentives provided by government to encourage individuals to save for retirement. The current TRP system – where you can keep working part-time contribute pre- tax to super and pay yourself a pension at the same time – could be viewed as a windfall gain.
From time to time various “stakeholders” will propose alterations to the Superannuation system. Whether they come from the industry, treasury, the opposition or government, they should be seen for what they are at the point in time; rumours, comments, proposals and then legislation. Do not “box shadows” or pre-empt legislative change when planning for retirement. Until the ink has dried on legislation, the primary focus should be applying the rules as they apply up until that point in time.
Be mindful of the limitations that the Superannuation system imposes upon you. The maximum Deductible Contribution that can be made in your case either as Employer, Salary Sacrifice or Personal Deductible Contribution is $35,000 in the Financial Year. The maximum after tax or Non-Concessional Contribution you can make is $180,000 per Financial Year or $540,000 every 3 years as you are under 65.
In terms of accessing Superannuation – or specifically commencing a TRP scheme which has distinct tax advantages – , assuming you were born after 1 July 1962, you cannot access your Superannuation until age 58 either as an Income stream or as a lump sum (provided you have met a condition of release such as retirement). Note you may have a portion of your fund which is referred to as Unrestricted Non-preserved funds, these can be accessed at any time. You can check you member statement to see if these special conditions apply.
At age 58, if you wish to access your Superannuation as an Allocated pension under a Transition to retirement Allocated Pension, you must take a minimum of 4% of the account balance up to a maximum of 10% at 30 June each year. The minimum draw increases incrementally at 65,75,80,85,90 and 95. From age 65 there is no maximum draw.
If you are genuinely worried about the law changing, ensure that your retirement funding strategy takes into consideration you shorter terms needs. Do not overcommit cash flow to fund retirement. Any capital you may need prior to retirement, consider leaving outside of the Superannuation system until it is no longer an issue. See the prevailing rules or Tax benefits as an opportunity available to enhance your long term position; “use it or lose it”.
In all case remember that the role of Superannuation is to fund your retirement and therefor plan accordingly.