Transition to Retirement Strategies

Thinking about winding down your working hours as you approach retirement? On this episode of the Exploring Super podcast, we discuss Transition to Retirement (TTR) strategies and how Working Income Streams could help.

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Emergency Services Superannuation Board (ABN 28 161 296 741) (ESSB), the Trustee of the Emergency Services Superannuation Scheme (ABN 85 894 637 037) (ESSSuper).

Investment returns are not guaranteed. All investments carry risks and past investment performance gives no indication of future performance. Benefits in ESSSuper's Accumulation Plan, Income Streams and Beneficiary Account products are not guaranteed or underwritten by the Victorian Government or ESSSuper, and ESSSuper does not come under the jurisdiction of the Australian Financial Complaints Authority. ESSSuper comes under the jurisdiction of the Victorian Civil and Administrative Tribunal. ESSSuper is an exempt public sector superannuation scheme, and is not regulated by APRA or ASIC, but is governed by Victorian legislation.

The information contained in this article is of a general nature only. It should not be considered as a substitute for reading ESSSuper's Product Disclosure Statement (PDS) that contains detailed information about ESSSuper products, services and features. Before making a decision about an ESSSuper product, you should consider the appropriateness of the product to your personal objectives, financial situation and needs. It may also be beneficial to seek professional advice from a licensed financial planner or adviser. An ESSSuper PDS is available at esssuper.com.au/pds or by calling 1300 650 161.

Transcript

Transcript

00:00:02

You're listening to Exploring Super, the exclusive podcast for ESS Super members.

00:00:10

Welcome to Exploring Super, the exclusive podcast for ESS Super members.

00:00:15

My name is Christian Kueng and I'm the Manager of Member Education.

00:00:18

And I'm Felicity Brasher.

00:00:19

I'm the Group Executive of Member Services.

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In this episode, we're going to explore how superannuation can be a key to a smooth transition into retirement.

00:00:28

We're going to look at discovering how this powerful tool ensures a steady income stream and may help you boost your super towards your last years of employment.

00:00:35

Today we're joined by Manoj Sharma.

00:00:37

He's a senior financial advisor here at ESS Super.

00:00:40

Welcome, Manoj.

00:00:40

Thank you, Christian.

00:00:41

Felicity.

00:00:43

Manoj, there's lots of talk at the moment about planning for retirement and so forth.

00:00:47

It seems to be real buzzword out there.

00:00:50

Can you tell us a little bit more about this transitioning to retirement strategy?

00:00:55

Yeah, it's a good question, Felicity.

00:00:56

So transition to retirement as a strategy, we could look at it as a way of you, as the name suggests, transitioning into retirement.

00:01:03

So it's a way for members to be able to access some of their super and enable them to potentially reduce their hours.

00:01:12

So instead of completely stopping work, maybe reduce your hours and use transition to retirement strategy as a way of filling the gap in the shortfall of income that you might have had.

00:01:24

because you've reduced years and want to gradually retire.

00:01:28

Makes sense.

00:01:29

Sort of baked into the expression of transition to retirement.

00:01:33

Right.

00:01:34

Okay, Manoj, you mentioned accessing your super there.

00:01:36

So how do you actually do that?

00:01:38

What are the mechanics behind setting up something like this?

00:01:40

So a transition to retirement strategy to be able to

00:01:44

initially start the strategy, one of the main requirements is you have to have reached preservation age.

00:01:49

So that's typically now it's everybody that's 60 and above.

00:01:53

It does require you to set up a separate account.

00:01:57

So typically people have a superannuation account.

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So this requires you to set up a separate pension account.

00:02:05

ESS calls it a working income stream.

00:02:08

Other funds call it a transition to retirement pension.

00:02:11

So it does require a separate

00:02:13

Product to be set up, and that is what can give you access, limited access, to your supernovation fund.

00:02:21

It can be in the form of...

00:02:24

a fortnightly pension, funds offer options of fortnightly, monthly, annual, semi-annual payments.

00:02:31

There is a limit on how much you can draw down, which we'll talk a bit further down, but essentially it's setting up a separate product to give you access to some of your super to enable you to sort of transition into your retirement.

00:02:46

Okay.

00:02:47

So Manoj, you've told us a little bit about the working income stream here at ESS Super.

00:02:52

Can you sort of expand on that a little bit more in terms of how it would assist members?

00:02:58

So working income stream, it's set up by using some of your superannuation accounts.

00:03:04

Okay, so I can't put all my super in it.

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You can't put all of your super in because...

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you'll still need an accumulation account.

00:03:11

Because you're still working, you'll still need an accumulation account to receive things like your employer contributions.

00:03:17

So there is a requirement for you to have a superannuation account existing even in this strategy.

00:03:22

Members can set up a working income stream using some of the superannuation accounts.

00:03:26

Because ESS is a defined benefit fund, you've got to be careful on what product you already have, because not every defined benefit allows you to start a working income stream.

00:03:36

So it's essential that you

00:03:38

you understand what products are available for you to set up a working income stream.

00:03:43

State super members typically in ESS won't be able to use their defined benefit to set up a working income stream.

00:03:50

It would be accumulation members, a standard ESS defined benefit members that can consider a working income stream.

00:03:58

To come back to your question, so you would have an accumulation account and a working income stream sitting

00:04:04

next to it.

00:04:05

And the working income stream is what would give you that income.

00:04:08

It would be limited to between 4 and 10%.

00:04:12

So again, you cannot access your entire balance that you start a working income stream.

00:04:18

There is a maximum limit of 10%.

00:04:21

Okay, so if I started a working income stream with...

00:04:25

$100,000, I cannot draw more than $10,000 a year.

00:04:29

Not more than 10% in a financial year.

00:04:31

Okay, makes sense.

00:04:32

And on top of that, what you cannot do is draw lump sums from this working income stream.

00:04:39

So you can draw an income in the form of anywhere from 4 to 10% as an income stream, but you are not, because you haven't met a condition of release, you're not retired, you cannot draw lump sums from a working income stream.

00:04:54

OK, that's another important thing for people to understand.

00:04:57

That's great.

00:04:58

OK, Manoj, so why would someone look at setting up a transition retirement pension?

00:05:03

You know, obviously you give advice on this on a fairly regular basis.

00:05:07

What are the strategies that you're looking to assist with in setting up something like this?

00:05:11

Yeah, it's a really good question.

00:05:12

I'd start off by saying transition to retirement isn't suitable for everybody.

00:05:17

It really depends on your personal circumstance.

00:05:20

Historically, as we mentioned before, transition to retirement

00:05:24

enable you, if you are using the transition to retirement in its intended purpose, you would be reducing your hours, so a transition to retirement income stream could help you supplement that lost income.

00:05:38

So that was the primary purpose of a transition to retirement strategy.

00:05:43

Some members can also use it to boost their superannuation account by contributing more into their super.

00:05:50

So if your intention is to

00:05:53

do additional contribution, whether that be before tax or after tax, that additional income that you get from a transition to retirement strategy could enable you to do that.

00:06:03

You have to be mindful of contribution caps and what you've already put in and the current legislation, but that could be another reason why somebody would use a transition to retirement income stream.

00:06:16

There are other benefits of a transition to retirement, but

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This is where you really need to look at your personal circumstance to see if it is worthwhile.

00:06:25

And that's what we as an advice team look at for members is really look at your circumstance to see if the strategy is appropriate.

00:06:35

Yeah, of course.

00:06:36

That sounds great.

00:06:37

Are there any sort of limits or rules with the working income stream Manoj?

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Is there a minimum you've got to use?

00:06:46

Is there a maximum you can use here at *** Super?

00:06:50

Yeah, it's a good question.

00:06:51

So the main rule that you've got to abide by, I guess, is the fact that you have to be preservation age.

00:06:58

So 60.

00:06:59

60 for everybody now.

00:07:02

It is for anybody that's between 60 and 64.

00:07:06

Anybody over the age of 65, a transition to retirement pension strategy or transition to retirement strategy doesn't apply because you've met a condition of release.

00:07:15

So it's not relevant in that circumstance.

00:07:21

There is a minimum amount required to set up a transition to retirement here at ESS Super.

00:07:26

And that amount is 50,000.

00:07:28

Okay.

00:07:28

So if you don't have that amount, then it's not, you might be eligible to start a transaction.

00:07:35

transition to retirement, but because of the lower balance, you wouldn't be able to.

00:07:39

The other requirement, I guess, is a product dependent requirement.

00:07:44

So like I said before, you can use your accumulation funds, you can use money that's in, or some of the money that's sitting in a standard ESS defined benefit fund, but you can't use any funds that are sitting in a state super defined benefit fund.

00:08:00

Okay, you said you can use

00:08:02

some of the ESS SOFA.

00:08:05

So with ESS defined benefit members, you cannot use all of your defined benefit funds to set up a transition to retirement strategy.

00:08:17

There is a limit and the limits anything from 20 to 50% of your defined benefit fund.

00:08:22

So say for example, if you have a

00:08:25

If you have $1,000,000 in your defined benefit fund, you can't use all of that $1,000,000.

00:08:30

You can use anywhere from 20 to 50% of that $1,000 in that institution.

00:08:35

Anywhere from 200 to 500,000 in that example.

00:08:38

So Manoj, you mentioned in some detail about members using this obviously transition to retirement, reducing hours, supplementing income and so on.

00:08:44

But you also mentioned people that are looking to perhaps boost their superannuation by using a TTR or working income stream.

00:08:51

Can you perhaps elaborate on that a little bit for us?

00:08:52

Yeah, that's a really good question, Christian.

00:08:54

So A transition to retirement strategy would enable you to get some additional income.

00:09:01

So members could use that income to do a variety of things in order to help boost their superannuation account.

00:09:09

They could consider

00:09:11

doing some additional salary sacrifice on top of what they might have already been doing or on top of their employer standard contribution.

00:09:19

They could consider doing some additional contribution in the form of an after-tax contribution.

00:09:25

Some other things that you might consider is if you have a partner and if you're in a position where you feel you've done as much as you can with your super, but you want to assist

00:09:38

a partner who has a low supernovation balance, you could even consider that as part of a strategy.

00:09:44

And this is where, I said before, it starts getting a bit more involved and it starts becoming important that you look at...

00:09:52

not just yourself, your partner, your overall circumstance.

00:09:56

And typically that's the sort of area that we as an advice team assist members on.

00:10:01

We sit down with them, consider their circumstances, consider this as an overall strategy to see.

00:10:08

where we can assist and where we can provide them some benefits.

00:10:11

Yeah, excellent.

00:10:12

Okay, so you've given us a lot of information, Manoj, today.

00:10:15

To sort of wrap up, I guess, what other considerations do you think members need to be aware of if they were to be considering this sort of strategy?

00:10:25

Yeah, that's a good question.

00:10:26

Look, there are quite a lot of considerations before...

00:10:30

Before you jump into a transition to retirement strategy, we can start off with contributions.

00:10:35

I mentioned you can use the transition to retirement to make additional contributions to your super.

00:10:41

There are limits on contributions.

00:10:42

So as a member, it's very important that you're mindful of your contribution caps.

00:10:48

Again, I mentioned this before, Edie, you are opening up a second account on top of your existing accumulation account.

00:10:55

So 2 products.

00:10:57

two sets of fees.

00:10:59

It's a question of whether that additional fee provides you any additional benefit.

00:11:05

Investment risk is another one.

00:11:07

So a working income stream is an investment-linked product.

00:11:11

You are making investment decisions, so it's important that you consider your own attitude towards risk and where you invest, how you invest becomes very important.

00:11:21

For a defined benefit member, predominantly most of our members are defined benefit members that

00:11:27

One of the biggest risks is you are coming out of a defined benefit environment for part of your fund.

00:11:33

A defined benefit is, there is very little investment risk in a defined benefit fund because it is defined by a formula.

00:11:38

Once you're out of that environment, generally you can't go back into that environment.

00:11:43

So that is a big consideration.

00:11:46

Are you comfortable to take risk with whatever funds you take out of the defined benefit fund?

00:11:53

A working income stream

00:11:54

is allowing you to draw on your super earlier on.

00:11:58

So that's the other risk.

00:12:00

You are drawing on your super early on.

00:12:03

And if not used properly, you could run out of your funds.

00:12:06

So again, it is a big consideration.

00:12:10

It's not something that everybody should be jumping into just because they've reached preservation age and this is something that they can consider.

00:12:17

Yeah.

00:12:18

Legislation can change.

00:12:20

What rules apply for a transition to retirement now may change in the future.

00:12:25

It has, there were different rules in the past and it has already changed.

00:12:30

So it can change again in the future as well.

00:12:34

Your personal circumstances might change.

00:12:37

As I'm reading off of this, hopefully listeners can understand that this isn't something that you, a transition to retirement strategy is not something that you get in

00:12:48

likely.

00:12:50

There are a lot of things to consider.

00:12:52

So it is important that you get all the information that's available to you to make an informed decision.

00:12:59

And ESS provides A variety of information for you to get that.

00:13:03

We offer seminars.

00:13:05

There are fact sheets on our website, podcasts.

00:13:09

We have member education consultants who can sit with you and talk through generally what options are available to you, what you can and can't do.

00:13:18

Obviously, we've got financial advisors who can help you look at your personal circumstances to help you make those decisions.

00:13:24

So I would suggest you use all the resources available to you before you take that next step.

00:13:30

Yeah, I think that's a very good tip.

00:13:32

Definitely.

00:13:33

Manoj, thank you so much for coming in today and sharing your insights.

00:13:36

And we look forward to having you on one of our podcasts again another time.

00:13:41

Thanks for having me.

00:13:42

Thank you.

00:13:43

That wraps up our episode today of Exploring Super, the exclusive podcast for ESS Super members.

00:13:48

We look forward to producing more content for you at ESS Super, proudly serving our members.

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If you'd like more information about our investments and products, please go to esssuper.com.au.

00:14:04

This podcast contains general advice that may not be right for you.

00:14:08

Before acting on anything in this podcast, please review the relevant product disclosure statements and target market determination on our website.

00:14:17

We also recommend that you consider financial advice from a licensed financial advisor.

00:14:22

The Victorian Government and ESS Super do not guarantee or underwrite the benefits in our accumulation products.

00:14:29

Information in the podcast was up to date as at August 2024.

00:14:35

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00:14:50

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00:14:56

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