With the large number of baby boomers having a self-managed superannuation fund one of the first chances of accessing their superannuation is as a Transition to Retirement Pension (TTR) when they turn 55.
Although there is a lot of documentation required when one of these pensions is started, the benefits for the super fund and the member outweigh this extra work.
When a TTR pension is paid by a super fund it pays no tax on the income earned to fund the pension. In addition, if the member is 60 or over they pay no tax on the pension; if they are under 60 the member gets a 15 per cent tax reduction in the form of a tax offset on the taxable portion of the pension received. Where the member's super balance included tax free non-concessional benefits, that portion of the pension will be received tax free.
The documentation required for a TTR to be commenced is as follows:
- a letter from the member to the trustees requesting that they commence a TTR pension,
- a letter from the trustees back to the member acknowledging receipt of the request, a statement that the TTR pension will commence, and that a TFN declaration form was enclosed for the member to complete,
- a resolution passed by the trustees detailing the member's request and that the TTR pension will we paid,
- the member completes the TFN declaration, and
- in some cases the super fund sometimes needs to register for PAYG Withholding tax. This will involve the trustees in completing a BAS once a quarter and forwarding tax withheld from the TTR pension to the ATO.
Often when a TTR pension is commenced members will still also be in accumulation phase. As a result trustees must decide whether they will segregate the assets of the fund between the two member's accounts, or request an actuarial report.
If the decision is made to segregate the assets trustees will a have to keep track of the income from each of the assets and allocate it to the correct member.
Trustees must make sure all of the income relating to the pension assets is deposited into the pension bank account, and all of the pension payments are paid out of this account. Income from the accumulation assets and super contributions must be deposited into the accumulation bank account.
In some cases the extra work required by trustees, and/or the extra work and cost required by their administrator or accountant, can outweigh any real benefit from segregating the assets. Segregation of the assets really only works when there are some investments that will produce large capital gains and a case be made for segregating those investments with them being allocated to the pension members.