Don't change your transition to retirement plan just yet

You half-expected a crackdown on your transition to retirement (TTR) pension, but maybe the surprise from last week’s Budget release was the Government’s changing of the tax rules not just on future TTR pensions but on those already set up.

Still, before you make any sudden changes, financial planner Suzanne Haddan told the Australian Financial Review Weekend that the 15 per cent tax on earnings is only set to start after July 1, 2017 and there is still an election to get through first.

“The first thing I’m telling my clients is not to rush to change things. The change is only meant to start in 2017 and there will be lobbying,” Haddan says.

The Budget handed down on May 3 proposed changing the tax on earnings in TTR pensions from zero to 15 per cent, which is the same earning tax that applies to your money in the accumulation phase of superannuation.

Originally the TTR pension was all about encouraging people to transition towards retirement. It promotes people aged 56 and over to reduce your working hours and supplement your income via the pension. The zero tax on pension income was therefore a considerable incentive for you to start a TTR pension; you could boost your super balance with the tax saved.

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The other aspect making things less appealing for you as your retire is the $500,000 lifetime cap on after-tax contributions, especially if you’ve already made big non-concessional top us to your superannuation fund.

According to Colin Lewis of Perpetual Private you should make the most of the concessional contribution caps while you can, especially if those changes come through in 2017.

Lewis also says retaining money in the super system is crucial.

While the changes proposed in the Budget are concerning, the actual impact could be quite small according to some experts. Advisers are saying it might not be worth doing anything too reactive before legislation has even been passed.

Are you concerned by the Government’s Budget proposal on tax and superannuation?

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