Transition To Retirement - Information For Superannuation Professionals

What is transition to retirement?

The transition to retirement measure allows people who have reached their preservation age, to have access to their superannuation benefits without having to retire or leave their job. This measure allows people to access their superannuation savings by drawing down certain non-commutable superannuation income streams called transition to retirement income streams.

From 1 July 2007, new rules apply to transition to retirement income streams.

Income streams which commenced before 1 July 2007 and that complied with the transition to retirement rules at the time are deemed to satisfy the new requirements and may continue to be paid under the former rules.

For information on transition to retirement income streams that commenced before 1 July 2007, see Transition to retirement - information for superannuation professionals
(NAT 15258, PDF, 107KB)

How does an income stream qualify as a transition to retirement income?

Transition to retirement income streams commencing on or after 1 July 2007 must satisfy the following requirements:

A. It must be an account-based income stream. This means an account balance must be attributable to the recipient of the income stream.

B. The payment of a minimum amount to be made at least annually - currently 4% of the account balance where the member is under age 65.

C. The total payments made in a financial year must be no more than 10% of the account balance (at the start of each year). This is the maximum amount of income stream benefits that can be drawn down each year.

D. Restrictions on the commutation of the income stream (except in limited circumstances).

E. There is no provision made for an amount or percentage to be left over when the income stream ceases.

F. The income stream can be transferred only on the death of the member to one of their dependants, or cashed as a lump sum to a dependant, non-dependant or the pensioner's estate.

G. The capital value of the income stream and the income from it cannot be used as security for borrowing.

Are there any restrictions on commutation of transition to retirement income streams?

If a transition to retirement income stream is commuted, the resulting lump sum benefit cannot be taken in cash unless the member satisfies a condition of release with a 'nil' cashing restriction (for example, retirement) or the purpose of the commutation is to:

cash an unrestricted non-preserved benefit
pay a superannuation contributions surcharge liability
give effect to a payment split under family law, or
ensure a payment can be made to give effect to a release authority or transitional release authority.

What happens if a member retires after commencement of a transition to retirement income stream?

If a member retires or qualifies for another condition of release with a 'nil' cashing restriction after the commencement of a transition to retirement income stream, they may have the following options:

Continue to receive the income stream
Commute the income stream to purchase another income stream
Commute the income stream and take the resulting lump sum benefit in cash
Commute the income stream and roll it back into the superannuation system

The options available vary depending on the type of income stream that was taken and the time since its commencement. Members should seek advice from their superannuation fund about whether they will provide all of these options.

Can self managed superannuation funds pay a transition to retirement income?

A self managed superannuation fund may pay a transition to retirement income stream, provided the trust deed of the fund allows this type of income stream to be paid. If you are a trustee and you need more information, talk to your financial or tax professional.

If a member continues to work and receive superannuation benefits from your fund at the same time, your fund may also be accepting contributions such as superannuation guarantee payments on behalf of the member. There should be two accounts to make this arrangement work - one for paying benefits and the other for receiving contributions.

Is there a cap on the amount of superannuation that can be accessed by members?

There is no specific limit on the amount of superannuation benefits that may be drawn down under the transition to retirement measure other than the requirement that no more than 10% of the account balance, as at the start of the financial year, may be paid each year.

Members should discuss this issue with their superannuation fund as funds will have their own rules.

Do superannuation funds have to offer non-commutable income streams?

It is not compulsory for superannuation funds to offer their members transition to retirement income streams.

Do members have to declare their transition to retirement income on their tax return?

If a member is aged 60 or over, and the transition to retirement income stream is paid from a taxed source, the member does not have to declare their transition to retirement income on their income tax return.

If the member is between preservation age and 60 years, or if the transition to retirement income stream is paid from an untaxed source, the member will need to declare the taxable component of the income stream on their income tax return.

The member does not have to advise their employer that they are receiving a transition to retirement income stream nor do they have to advise their superannuation fund that they are receiving employment income. However, the member will need to decide from which payer they wish to claim the tax free threshold. If the client claims the tax free threshold with both payers, they may end up with a tax liability at the end of the income year.

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