A significant component of Australia’s super system, its preservation age, has had a birthday of sorts.
The minimum superannuation preservation age – the age at which super members can access their preserved super savings – has risen to 56 from July this year for those born after June 30, 1960. (This is up from age 55 for those born before that date.)
As the Australian Superannuation Handbook 2015-16, published by Thomson Reuters, explains: "This means, for example, that those born between July 1, 1960 and June 30, 1961 will need to wait until July 1, 2016 (or as late as June 30, 2017) before they reach their preservation age of 56."
There has been little recent publicity about this increase in the preservation age affecting those around their mid-fifties. However, the change is no doubt being noticed by individual fund members affected including those who in the past had intended to begin a transition-to-retirement pension upon reaching their preservation age.
The preservation age is, of course, a critical consideration those intending to take their super upon retirement as a lump sum or pension. However, this Smart Investing is focusing from the prospective of transition-to-retirement pensions.
For years, we have read that the minimum preservation age is from 55 for super fund members intending to take a transition-to-retirement pension when eligible. The bottom-line is that for practical purposes, the minimum age – apart from those born before July this year – has risen.
See the tax office publication giving details of how the superannuation preservation age is being progressively increased to 60 over the next few years. (Those born after June 30, 1964 – now in their early fifties – have a preservation age of 60.)
Transition-to-retirement pensions were introduced 10 years ago largely to enable middle-age fund members to keep working until older ages, perhaps winding down their working hours and supplementing their employment income with a super pension.
However, transition-to-retirement pensions have, of course, become a standard strategy for those wanting to maximise their retirement savings during their possible countdown to retirement.
A common approach is to re-contribute the amount of income from a transition-to-retirement pension as non-concessional (after-tax) contributions while continuing to try to maximise salary-sacrificed contributions. And many fund members following this approach decide not to wind-back their working hours at this stage of their lives.
As financial planners explain, a key feature of this strategy is that superannuation assets backing the payment of a superannuation pension are no longer taxable. And once the members turn 60, the actual pension payments are also no longer taxable in their hands.
So a 56th birthday might be worth an extra celebration for thousands of fund members – let alone an extra candle.
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia.
As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.