Question 1

• Dear Craig, I really enjoy reading your column. I am 63 and working full time. My annual income (minus super) is $100,000. I have $800,000 in super and I salary sacrifice the maximum amount. I do not have any debts and I have $100,000 in savings. Next year, I am reducing my time to 0.8. Would it be worthwhile organising a transition to retirement to top up my income and reinvest in super or should I just draw down my savings? Many thanks, Beverly

Hi Beverly,

Thanks for those comments. Sounds like you have been doing a great job in saving for retirement.

I also think that for many people going from full time to part time is a great way to transition into retirement, rather than just stopping altogether.

After a lifetime of work some people really struggle with the loss of structure and meaning – going part time is a good way to bridge that gap.

Previously, a ‘transition to retirement pension’ use to be very generous in having all earnings tax free, the same as a regular pension.

However, a few years ago the rules were changed and now all earnings are taxed at 15 per cent, the same as an ordinary superannuation accumulation fund. 

Note that all payments from a transition to retirement pension are still tax free for those 60 or over and if you have reached this age then anyone can start one.

In going to 0.8 part time I assume your salary will go from $100,000 to $80,000. However, when we take income tax into account your net take-home pay reduction won’t be $20,000 it will be just over $13,000.

If you can still meet all of your expenses and continue to maximise your salary sacrifice contributions on your reduced income, then there is no need to start a transitional to retirement pension.

I would only commence one if you need the additional (tax-free) income, otherwise retain the funds in super until you permanently retire and need the income.

Question 2

• I am in the process of writing my will. When it comes to my spouse I know that she is a bit naive when it comes to finances; rather than leaving a lump sum that could quickly be lost to fraud or ‘borrowed’ by distant relatives, I’d like to leave her an income stream, i.e. a lifetime annuity. If my will contains instructions to that effect, what are the tax implications, especially if funded from my super?

The easiest way would be for you to set up a lifetime annuity in your name now and have her nominated as the reversionary.

In this way the lifetime annuity will automatically revert to her upon your death.

If the funds come from super and you are over 60, all payments would be tax free.

If on the other hand you only wanted to put this in place after death, then things could get tricky.

Once funds leave super and get paid to your estate then they are no longer in the super system.

The mechanics of how you could make someone purchase a lifetime annuity, with effectively their money at that point, could also be difficult.

I suggest you seek estate planning advice over this.

Question 3

Hi, I’m 55, and have very little super because I’ve been a full-time carer for over 10 years. I have just inherited a home worth about $1.5 million. Over the next few years, is there any point contributing some or all of that to my super account or just invest in multiple accounts now offering around 5 per cent interest.

Assuming you are selling the home, then yes, there are many advantages to contributing to super.

Most importantly, in retirement it can provide you with a tax-free income stream.

Because super is so generous from a tax perspective there are caps on how much you can contribute each year, so you need to take that into account.

After-tax contributions, called ‘non-concessional’ contributions, are capped at $110,000 per financial year, but you can make a contribution of up to $330,000 in one go, but then won’t be able to contribute for three years.

You may find that you do need to park some funds in accounts that pay high interest until you have an opportunity to contribute them to super.

The other things to consider is when you can access your super.

For you this will be age 60 if you have retired from the workforce. Otherwise, it will be 65 regardless if still working or not.

Given the sum involved it may be an opportune time to start thinking about your long-term goals, including what type of retirement you want, and seek out some financial advice.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

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