Important Information: The information in this presentation is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Magnitude

Group Pty Ltd and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.

Disclaimer

This information was prepared by Magnitude Group Pty Ltd, ABN 54 086 266 202 & AFSL 221557 (Magnitude) and is current as at May 2015.

This presentation provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The information in this publication does not take into account your objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it and obtain financial advice. Any taxation position described in this publication is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation.

Your individual situation may differ and you should seek independent professional tax advice. The rules associated with the super and tax regimes are complex and subject to change and the opportunities and effects will differ depending on your personal circumstances.

Transition to Retirement PensionBoosting your retirement savings while saving tax

Liam ShorteFinancial Planner & SMSF Specialist Advisor™

VERANTE

Theory vs Reality

This webinar is focused on real issues experienced in the actual setting up of an SMSF

What tax rate* do you prefer?

Investment Structure

A B C D

Income 46.5% 30% 15% 0%

Capital Gains 24% 30% 10% 0%

Superannuation

Who can contribute to super?

• Anyone under 65• Between 65 and 74 (‘work test’ required)• Age 75 and older (unable to contribute other than mandated

employer contributions)

Maximum contribution limits - Concessional

• Concessional contributions capped at $30,000* p.a. under 49• $35,000 for those over 49 on 1st July.• More important to start salary sacrificing earlier than ever

before!• 9.5% compulsory super counts towards this concessional cap

Example Salary sacrifice Vs. non-concessional contribution

After-tax contributions

Salary sacrifice before tax

Salary excluding SG $75,000 $75,000

Salary sacrifice amount $0 $10,000

Net salary $75,000 $65,000

Income tax* ($15,922) ($12,647)

Medicare levy + Flood levy ($1,500) ($1,300)

After-tax salary $57,578 $51,053

Net super contributions ($8,500)

Net cash flow $49,078 $51,053

Net benefit $1,975

Maximum Contribution limits – Non-concessional

• Personal contributions capped at $180,000 pa• If under 65 you can bring forward 2 years of cap and

contribute up to $450,000

30 June 2015 30 June 2016 30 June 2017 30 June 2018

$540,000 $0 $0 $540,000 $0

30 June 2019

$180,000 $180,000 $180,000 $180,000 $180,000

Consider assets outside super as a non-concessional contribution

• Possible options:– Existing cash– Sell an asset– Transfer an asset– Borrow– Inheritance

Accessing your super

Super Release Conditions

To access funds from superannuation either as a lump sum or income stream the main conditions of release and ability to access your super money are as follows:• Retirement (at preservation age or terminating employment

after 60)• Attaining age 65• Death• Terminal illness• Permanent incapacity• Temporary incapacity• Transition to Retirement (pension option only)

Your Preservation Age for Super Access

Date of birth Preservation ageBefore 1 July 1960 55

1 July 1960 to 30 June 1961 56

1 July 1961 to 30 June 1962 57

1 July 1962 to 30 June 1963 58

1 July 1963 to 40 June 1964 59

After 30 June 1964 60

Transition to Retirement

The Transition to Retirement Option (TTR)

How to get a free kick-start for your retirement

A transition to retirement strategy allows you to either cut back hours while using your retirement savings to top-up your income, or continue working and boost super in a tax-effective manner.

Transition to retirement

The TTR Criteria

• You must have reached your preservation age• Must be purchased with super rollover monies only• Allows you to continue working either full-time or part-time

but access to your super by way of a pension• You can convert all or part of super to a pension• No lump sum access until retired• Minimum pension 4% p.a. of account balance/Maximum

pension 10% p.a. of account balance• Can be rolled back to super if required – conditions apply

Advantages of a TTR Pension

• Allows you to transition from full-time employment to part-time employment

• Give yourself a pay rise• Allows to work full-time and access your super prior to

retirement• Salary sacrifice tax savings • Can be structured to maintain current net income• No 15% tax on investment income or 10% CGT on the pension

assets

Advantages of a TTR Pension

• The only tax you pay is on the pension income you draw• Some or all pension income may be tax free • A 15% tax rebate applies for those aged 55 to 59• If you are over 60 you will pay no personal tax

on the pension income you draw• Ability to draw a ‘lump sum’ by taking an annual pension

upfront • Super split contributions from younger to older spouse

Disdvantages of a TTR Pension

• You will need 2 separate super accounts one for pension account and one for the accumulation account

• You can’t draw down a lump sum until retirement• You must draw a pension income every year• Your pension account could run out• Maximum pension limited to 10% of your account balance

each year• Unable to add additional contributions to pension account as

new pension must be established

A TTR pension example

ComponentsAge 55 – 59

Taxable $400,000Tax-free $150,000

Super $550,000Required income $50,000Tax on pension receivedPension income $50,000

After age 60 Tax exempt

Less tax-free $13,636Balance $36,364Tax $3,006*Less offsets $5,454#

Net tax $Nil

• FY15/16 rates, excludes Medicare levy

• # 15% Tax rebate on taxable pension

Case Study Full-Time to Part-Time Work

• Harold has just celebrated his 56th birthday and currently working full time on salary of $80,000

• Harold would like to work part-time so he can play more golf and spend more time with the grand kids but can’t afford the drop in salary income

• His employer is happy to reduce his employment contract to part-time, paying $55,000 p.a.

• Harold has $450,000 in superannuation savings (including $100,000 non-concessional contributions).

Full-Time to Part-Time

• Harold now wishes to work 3 days p.w. Working status Full time Part timeGross income $80,000 $55,000Tax liability $19,147 $10,522After tax inc. $60,853 $44,478

• Will receive $16,375 p.a. ($315 p.w.) less cash in hand after tax if he works part time

The TTR Part-time Strategy

• As Harold has reached his preservation age 55, he can now take a TTR pension

• Harold rolls over his $450,000 super balance to a TTR pension • To supplement his income, he could draw $19,400 from his

pension.• His annual income will now be as follows:

– New part-time salary $55,000– TTR pension $19,400– Total income $74,400

The Full-Time to Part-Time Strategy

Position Full time Part timePart time +

TTR StrategyGross Income $80,000 $55,000 $74,400Tax free amount $4,311Taxable Inc $80,000 $55,000 $70,089Tax $19,147 $10,522 ($15,728)Pension tax offset

$2,263

After Tax Inc $60,853 $44,478 $60,935

TTR Case study - Anna aged 55

Client Anna (aged 56)

Employment Full-time

Income $76,000 p.a.

Super $350,000 (includes $100,000 tax-free)

Anna’s TTR strategy

From 1 July 2015:• We transfer her current super benefits to a transition to

retirement pension• Draw pension each year required to be same after tax

position• She salary sacrifices $35,000 p.a. to super (includes SG)

Assumptions: Salary indexed at 4% per annumIncome needs 3% increase per annumSuper investments earn 6% p.a. Net of tax Pension investments earn 7% p.a. Net of taxExcess income not re-invested

Case study B: Anna’s TTR Option

Do nothing Implement strategyGross income $76,000 $71,950

Tax payable $17,767 $13,399

Net income $58,233 $58,233

Super balance $377,046 $30,749

Pension balance $381,603

Net balance year 1 $409,825 $412,352

Balance at 65 $722,777 $845,279

Case Study B: Anna’s result

Asset Build Up

Before TTRDo Nothing With TTR

Date Value Accum Bal Pension Bal Total Assets Improvement from TTR

01 Jul 2014 $377,046 $0 $377,046 $377,046 $0

30 Jun 2015 $406,019 $30,749 $381,603 $412,352 $6,333

30 Jun 2016 $436,985 $30,858 $419,681 $450,538 $13,554

30 Jun 2017 $470,073 $30,663 $461,574 $492,237 $22,164

30 Jun 2018 $505,420 $33,202 $506,670 $539,872 $34,452

30 Jun 2019 $543,175 $36,287 $555,330 $591,617 $48,443

30 Jun 2020 $583,491 $39,020 $608,556 $647,576 $64,085

30 Jun 2021 $626,536 $41,972 $666,115 $708,088 $81,551

30 Jun 2022 $672,885 $45,156 $728,359 $773,516 $100,631

30 Jun 2023 $722,777 $49,622 $795,657 $845,279 $122,502

Case Study B: Anna’s result

That pays for replacement cars, extra holidays, medical treatment, lifestyle!

But what about the impact of negative market movements?

Assume that markets fall on average 3% per year over the next 10 years, does the strategy make a difference?

Your Super Checklist

StrategiesClient age

<56 56 - 64 65 - 74Personal contribution to $180K Use of averaging rules to $540K Salary sacrifice Personal deducted contributions Co-Contributions Transition to retirement pensions Tax effective income streams Gearing in super

Your best investment

• The best investment you can make is to seek advice!• A good financial adviser will work through each stage of the

financial planning process with you, making sure you have a clear understanding of each stage and that you are comfortable with any recommendations they make.

• Their advice will be tailored specifically to your individual needs, circumstances and financial objectives.

• A good Financial Adviser will not be afraid to work with your Accountant and Solicitor

Questions?

Contact UsTel. 02 9894 1844Fax. 02 9894 1944contact@verante.com.au

Main OfficeSuite 5, 15 Terminus Street Castle HillPO Box 987, Castle Hill NSW 1765

SMSF Office

Suite 2 Charrington CtOld Northern RoadBaulkham HillsPO Box 6002, BHBC Baulkham Hills NSW 2153

Windsor Office

Hawkesbury Chambers Cnr George & Dight Streets WindsorPO Box 701, Windsor NSW 2756

www.verante.com.auVerante Financial Planning Pty Ltd is a corporate authorised representative of Magnitude Group Pty Ltd | ABN 54 086 266 202 | AFSL 221557