Transition to Retirement. Presented By Eddie Wasilewski Relationship Manager, IOOF October 2016

Transcription

1 Transition to Retirement Presented By Eddie Wasilewski Relationship Manager, IOOF October 2016

2 General Advice Warning This presentation has been prepared by IOOF Investment Management Limited (IIML), ABN , AFS Licence No and Australian Executor Trustees Limited (AET) ABN , AFSL IIML and AET are members of the IOOF group of companies consisting of IOOF Holdings Ltd, ABN , and its related bodies corporate. IIML's contact details can be found on and AET s contact details can be found on Information contained within this presentation has been prepared as general advice only as it does not take into account your investment objectives, financial situation or particular needs. The presentation is not intended to represent or be a substitute for specific financial, taxation or investment advice and should not be relied on as such. You should consider whether the information is appropriate to your situation, and where appropriate, seek professional advice from a financial adviser and/or tax agent before making an investment decision. Before deciding whether to acquire or to continue to hold any investment mentioned in this presentation, a Product Disclosure Statement (PDS) should be obtained and considered. Past Performance is not a reliable indicator of future performance. All assumptions and examples are based on current laws (as at 1 September 2016) and the continuance of these laws and IOOF s interpretation of them. IOOF does not undertake to notify its recipients of changes in the law or its interpretation. All examples are for illustration purposes only and may not apply to your circumstances. 2

3 What is a TTR strategy? A transition to retirement (TTR) strategy involves A gainfully employed person aged 56 or over Combines salary sacrifice with a pre-retirement pension It acts to replace income foregone by salary sacrifice by drawing a non-commutable account based pension A TRANSITION TO RETIREMENT STRATEGY ALLOWS YOU TO TAKE CONTROL OF YOUR TRANSITION TO RETIREMENT 3

4 What are the benefits of a TTR strategy? Access your super while you work Ease into retirement by being able to work less hours and still maintain your existing income Supplement your pre-retirement income Retire earlier than expected Maximise tax advantages 4

5 Disadvantages of a TTR strategy Retirement benefits may be depleted at an earlier age Pension draw downs are limited to a maximum of 10% of the account balance Salary sacrifice contributions will be preserved and cannot be taken as a lump sum until retirement BEWARE OF THE CONTRIBUTION CAPS! If you are over 50, the $35,000 pa cap includes employer and salary sacrifice contributions! 5

6 Who would benefit from a TTR strategy? People who are seeking to Transition into part time employment Boost their retirement savings Compliment their existing salary sacrifice strategy YOU CAN BOOST YOUR SUPER SAVINGS WHILE STILL WORKING Continue to work full-time, salary sacrifice back into super and supplement your reduced salary with your pension income 6

7 What does it involve? Your salary (taxed at marginal rates) if taken as cash Contribute $ to super via salary sacrifice Super (taxed at 15%) Move $ to transition to retirement pension Transition to retirement pension (investment earnings are tax-free*) YOU Income is taxed at marginal tax rates (less 15% rebate) only if under age 60 Draw down from pension to supplement your reduced salary Income is tax-free if aged 60 or over * The Government intends to tax earnings at 15% on TTR pensions from 1 July

8 Important things to note about a transition to retirement pension GENERALLY YOU CANNOT WITHDRAW YOUR PENSION AS A LUMP SUM UNTIL YOU RETIRE MAXIMUM PENSION IS 10% OF YOUR ACCOUNT BALANCE 8

9 SALARY SACRIFICE 9

10 Benefits of salary sacrificing into super Super contributions are taxed at 15%, or 30% if income is in excess of $300,000 Your salary is taxed at 0% 49% including Medicare levy Potential tax advantages Boosts your super balance NOTE: SALARY SACRIFICE IS INCLUDED AS INCOME FOR ANY GOVERNMENT MEANS TESTED BENEFITS 10

11 Salary sacrifice example Direct comparison of $10,000 salary v salary sacrifice Highest marginal tax rate of 47% and 2% Medicare levy TAKEN AS SALARY (47% tax & 2% Medicare levy) SALARY SACRIFICED INTO SUPER (15% tax) Salary $10,000 $10,000 Tax $4,900 $1,500 Available for investment $5,100 $8,500 11

12 Salary sacrifice example Direct comparison of $10,000 salary Person earning $80,000 pa Marginal tax rate of 32.5% and 2% Medicare levy TAKEN AS SALARY (32.5% tax & 2% Medicare levy) SALARY SACRIFICED INTO SUPER (15% tax) Salary $10,000 $10,000 Tax $3,450 $1,500 Available for investment $6,550 $8,500 12

13 TTR STRATEGY EXAMPLE 13

14 Example 1 - Joe (aged 56) Joe is 56 and earns $80,000 pa $7,600 pa is currently paid into super as employer contributions His current superannuation balance is $250,000* (100% taxable component) He requires approximately $60,000 pa for living expenses Joe will continue working full time He wishes to maintain the same level of income after-tax Joe commences a pre-retirement pension * 100% of the funds preserved 14

15 Example 1: Joe (aged 56) WITHOUT TTR STRATEGY (age 56 64) WITH TTR STRATEGY (age 56 59) WITH TTR STRATEGY (age 60 64) Salary income $80,000 $80,000 $80,000 Pension income (max) - $22,295 - Salary sacrifice amount - ($27,400) ($27,400) Tax payable* ($19,147) ($14,042) ($9,694) Income after tax $60,853 $60,853 $42,906 Tax-free pension payment - - $17,947 Total net income $60,853 $60,853 $60,853 * 2015/16 tax scales including Medicare Levy 15

16 Example 1: Joe (aged 56) Net super position CONTRIBUTION POSITION FULL TIME EMPLOYMENT (56 to 64) FULL TIME EMPLOYMENT + PENSION (56 to 59) FULL TIME EMPLOYMENT + PENSION (60 to 64) 9. 5% SG contribution $7,600 $7,600 $7,600 Salary sacrifice amount - $27,400 $27,400 Less contributions tax ($1,140) ($5,250) ($5,250) Net contributions $6,460 $29,750 $29,750 Less pension payment - $22,295 $17,947 Net super position $6,460 $7,455 $11,803 Personal income tax $19,147 $14,042 $9,694 Contributions tax $1,140 $5,250 $5,250 Total tax paid $20,287 $19,292 $14,944 16

17 Example 1: Joe (aged 56) EMPLOYER SALARY INCOME $80,000 pa EMPLOYER SGC $7,600 taxed at 15% SALARY SACRIFICE $27,400 taxed at 15% SUPERANNUATION FUND ACCUMULATION FUND Net contribution $29,750 pa Earnings taxed at max. 15% CGT rate 10-15% PENSION FUND Start Balance - $250,000 Rolled over from accumulation fund Earnings and capital gains are tax-free* JOE Net income (est) $60,853 Taxed at MTR Less 15% rebate If over age 60, pension income tax-free Pension Payments $17,947 / $22,295p.a. - Paid monthly * The Government intends to tax earnings at 15% on TTR pensions from 1 July

18 Example 2 - Tom (aged 60) Tom is 60 and earns $100,000 pa Financially needs $71,000 (net) pa Super balance of $300,000 and wants to further his super savings If Tom salary sacrifices $25,000 pa his income drops to $57,578 pa (after tax) = not enough Therefore he needs to supplement his income Tom invests his $300,000 super into a transition to retirement pension Tom receives additional income of $15,790 in the first year from his pension 18

19 Example 2: Tom (aged 60) 9 BEFORE (PA) AFTER (PA) Salary $100,000 $75,000 Pension income Nil $15,790 Total pre-tax income $100,000 $90,790 Less income tax* $26,632 $17,422 Plus tax-free portion Nil 0 Net income $73,368 $73,368 * Medicare levy has been included

20 Example 2: Tom (aged 60) Net super position CURRENT SITUATION USING A TRANSITION TO RETIREMENT PENSION ADDITIONAL SAVINGS After year 1 $329,075 $334,535 $5,460 After year 2 $360,185 $371,487 $11,302 After year 3 $393,473 $411,027 $17,553 After year 4 $429,091 $453,333 $24,242 After year 5 $467,203 $498,602 $31,399 Assumptions: 1. SG contributions remain constant at 9.5% 2. $25,000 per annum of constant salary sacrifice 3. Net return after fees and taxes of 7% per annum 20

21 Example 3: Jen (aged 60) Jen is 60 and earns $50,000 pa plus 9.5% super Has a super balance of $180,000 Wants to cut back her working hours, but that would reduce her salary to $30,000 pa plus 9.5% super Her annual income goal is $41,000 pa, so she needs to supplement her current income In the first year, her pension pays her an additional $13,397 pa which meets her annual income goal ($41,000 pa) 21

22 Example 2: Jen (aged 60) BEFORE (PA) AFTER (PA) Salary $50,000 $30,000 Total pre-tax income $50,000 $30,000 Less tax* $8,547 $2,397 Plus tax-free pension Nil $13,397 Net income $41,453 $41,000 * Low income tax offset and Medicare levy have been taken into account 22

23 Example 2: Jen (aged 60) Reducing tax and more By using a transition to retirement pension, Jen s annual tax reduces by $6,150 Payments from her pension will be tax-free And if she contributes $1,000 into her super, she may qualify for a Government super co-contribution of $500 23

24 Example 2: Jen (aged 60) CURRENT SITUATION* USING A TRANSITION TO RETIREMENT PENSION* DIFFERENCE After year 1 $ 195,023 $ 183,126 -$ 11,897 After year 2 $ 211,097 $ 186,470 -$ 24,627 After year 3 $ 228,296 $ 190,048 -$ 38,248 After year 4 $ 246,699 $ 193,877 -$ 52,822 After year 5 $ 266,390 $ 197,974 -$ 68,417 * Assumes 9.5% SG is payable on $30,000 for both situations 24

25 Summary If implemented correctly a TTR strategy can be extremely tax effective and help to grow your super balance The right pension strategy for you may not be the same for everyone It s important to discuss all your financial objectives with a financial adviser to determine the most appropriate strategy for you Note: The Government intends to tax earnings at 15% on TTR pensions from 1 July

26 Questions 26

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