TTR still viable for over 60s

Transition-to-retirement (TTR) strategies are still viable for those over 60 as those pension payments are tax free and allows more salary sacrifice and would give a reasonable benefit over a five-year period, according to Colonial First State (CFS).

Speaking at a media briefing on Wednesday, CFS executive manager for FirstTech, Craig Day, said for those under 60 the benefit would be marginal.

Day said people who were transitioning to retirement and could no longer work full time or did not want to but needed to bump up their level of income would start a TTR to achieve that.

“Also some people will use a TTR as a debt reduction tool, so they’ll want to retire at age 65 with their mortgage fully paid off so they may turn on a TTR at age 60 to give them a bit more cashflow every year which then gets directed towards the mortgage repayments,” he said.

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“In terms of opportunities here for TTR pensions, one of the things I’ll be looking to do and a lot of advisers are looking to do, where possible, convert that TTR to an account based pension [ABP].”

Day said converting to an ABP meant clients would not have to worry about the taxation of the income of the assets.

“What you may have here is a lot of people that have started TTRs in the past that may well have satisfied a condition of release but they’ve never actually converted that to an ABP,” he said.

Day noted that there was a slightly different definition of retirement for those over 60. He said once a person turned 60, to satisfy retirement they had to cease an arrangement of employment but it did not mean they did not have to work.

“If they’re over age 60, they may not think that they satisfy the condition of release but they actually in fact have because they’ve ceased an arrangement of employment after 60,” Day said.

“There’s no requirement that you need to not intend to return to the workforce and that’s the rule between 56 and 60, but 60 and over simple says you must cease to end an employment arrangement and that’ll satisfy the condition of release.”

He said if they went back to work the future contributions would be preserved and they would have to satisfy another condition of release but the accumulated savings up until that point could be made into an unrestricted unpreserved and if they were running a TTR they could convert that to a normal ABP.

“A lot of clients will not think they satisfy a condition of release so we’re saying to our advisers have a look at their clients over 60 and make sure they have satisfied a condition of release,” he said.