Retirement Planning
Pension Funds are the most utilised vehicles in retirement. They are merely another phase of the superannuation system and are widely used when people get to retirement age, which generally can be any time after age 60. Your superannuation balance, or, if you choose, part thereof, can be transferred from the super phase to the pension phase.
Once in this phase retirement benefits are free from tax on withdrawal and also on the income stream.
There is also another important function of pension funds in the pre-retirement phase, whereby special tax effective strategies can be put in place to enhance your overall superannuation benefits. The strategy is often referred to as Salary Sacrifice, which means you can divert part of your regular income to superannuation, which is then taxed at a much lower rate (15%) than your salary.
This is a very effective way to boost retirement benefits once you get to the preservation age, which can range between age 55 and 60.
Linked to the Salary Sacrifice strategy is the Transition to Retirement strategy which allows you to draw down a portion on your super/pension as a regular income to offset the amount you put into salary sacrifice.
The overall result is less tax being paid and your super/pension accounts accumulating more before eventual retirement. This is a very powerful strategy, which is unique to the superannuation system in Australia.
