Nick Bruining: Use transition to retirement fund to keep working, tap into super and clear home loan sooner

It’s a strategy dangled at seniors in the run-up to retirement. Called “transition to retirement”, it’s a way of accessing your existing superannuation fund for all sorts of useful purposes. Traditionally, financial advisers promote the strategy as a tool that can save you on income tax. While that’s true, it’s particularly useful for people who owe money on non tax-deductible debts, such as a mortgage or personal loan. Using it properly could save you thousands in tax and interest on your loans. A transition to retirement income stream is a hybrid account-based pension fund that sits somewhere between super in accumulation phase and super in retirement phase. ABPs allow you to draw down a percentage of the fund’s balance each financial year. For someone under the age of 65, the minimum amount that must be accessed is 4 per cent of the June 30 balance — or the starting balance if you commence it after July 1. The maximum you can access is 10 per cent of that balance, which is unique to a TRIS. The day you retire, that 10 per cent restriction is removed and you can access as much as you like. The other difference between a TRIS and a conventional ABP is that earnings continue to be taxed at 15 per cent whereas a “proper” retirement-phase ABP pays no tax on the earnings. If you start the TRIS or any ABP after July 1, the minimum percentage drawdown is done on a pro-rata basis. Starting halfway through the year, say in January, would mean the minimum amount you must access from the TRIS if under 65 is 2 per cent. Significantly, however, the pro-rata arrangement doesn’t apply to the 10 per cent maximum. If you go down this path, you could have your transition to retirement ABP set up and the 10 per cent out and off your mortgage in a matter of days. That’s an entire year’s worth of interest saved on the amount you pay off your loans. Next July 1, do the same thing and whack another payment off your debts until hopefully they’re cleared. If you think paying off your debts this way might work for you, the sooner you do it the better. Transition to retirement is only available once you reach the super preservation age, which as of July 1 this year is now 60. You can move all or some of your super into the TRIS. In practice, you would keep the accumulation fund open with a small amount so that future employer and member contributions can be made. One last benefit of starting your TRIS at 60 means that any payments from the stream are completely tax free. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association