Transition to Retirement January 2012

The TTR criteria You must have reached your preservation age Must be purchased with super rollover monies only Allows you to continue working either full-time or part-time but access your super by way of a pension You can convert all or part of super to a pension No lump sum access until retired Minimum pension 4% p.a. of account balance (3% for the current financial year due to temporary relief). Maximum pension 10% p.a. of account balance Can be rolled back to super if required – conditions apply

Advantages of a TTR pension Allows you to transition from full-time employment to part-time employment Give yourself a pay rise Allows you to work full-time and access your super prior to retirement Salary sacrifice tax savings Can be structured to maintain current net income No 15% tax on investment income or 10% CGT on the pension assets

Advantages of a TTR pension The only tax you pay is on the pension income you draw Some or all pension income may be tax free A 15% tax rebate applies for those aged 55 to 59 If you are over 60 you will pay no personal tax on the pension income you draw Ability to draw a ‘lump sum’ by taking an annual pension upfront Super split contributions from younger to older spouse

Disadvantages of a TTR pension You will need 2 separate super accounts, a pension account and an accumulation account You can’t draw a lump sum until retirement You must draw a minimum pension income every year Your pension account could run out Maximum pension limited to 10% of your account balance each year Unable to make additional contributions to pension account. A new pension must be established

A TTR pension example Components Age55 – 59 Taxable $400,000 Tax-free $150,000 Super$550,000 Required income$50,000 Tax on pension received Pension income$50,000 After age 60 Tax exempt Less tax-free$13,636 Balance$36,364 Tax (before pensioner offset)$3,854* Pensioner offset$5,454 # Net tax$545 * FY11/12 rates, includes Medicare levy (excludes Flood Levy) # offset doesn’t reduce Medicare liability

Case study full-time to part-time work Harold has just celebrated his 55th birthday and currently working full time on salary of $80,000 Harold would like to work part-time so he can play more golf and spend more time with the grandkids but can’t afford the drop in salary income His employer is happy to reduce his employment contract to part-time, paying $55,000 pa. Harold has $450,000 in superannuation savings (including $100,000 non- concessional contributions).

Full-time to part-time Harold now wishes to work 3 days p.w. Working statusFull timePart time Gross income$80,000$55,000 Tax liability$18,750 $9,975 After tax inc.$61,250 $45,025 Will receive $16,225 p.a. ($312 p.w.) less cash in hand after tax if he works part time

The TTR part-time strategy As Harold has reached his preservation age 55, he can now take a TTR pension Harold rolls over his $450,000 super balance to a TTR pension This will give a first year minimum pension payment of $13,500 for 2011/12 financial year His annual income will now be as follows: New part-time salary$55,000 TTR pension$13,500 Total income$68,500

The full-time to part-time strategy Position Full timePart time Part time + TTR Strategy Gross income $80,000 $55,000 $68,500 Tax free amount $ 3,000 Taxable inc. $80,000 $55,000 $65,500 Tax ($18,750) ($9,975) ($14,103) Less rebates* $ 1,975 After tax inc. $61,250 $45,025 $56,372 * Includes Pension and Mature Age Worker Tax Offsets

TTR case study: Anna aged 55 ClientAnna (aged 55) EmploymentFull-time Income$76,000 p.a. Super$350,000 (includes $100,000 tax-free)

Anna’s TTR strategy From 1 July 2011: Transfer her current super benefits to a transition to retirement pension Salary sacrifice $25,000 p.a. to super (includes SG) Draw pension each year as required to be same after tax position

Case study: Anna transitioning to retirement Do nothing Implement strategy Gross income$76,000$70,290 Tax payable$17,490$11,780 Net income$58,510 Super balance$378,188$27,922 Pension balance$354,535 Net balance year 1$378,188$382,457 Balance at 65$727,530$803,433 Assumptions: Super/ Pension investments earn 4.4% income 2.6 % growth p.a. pre-tax

Case study: Anna’s result

Case study: William William is aged 60 and on a salary of $130K pa. Requires $92,000 for living expenses $250K in super. Commences TTR with $250K. Min = $7,500 for 2011/12 financial year or Max = $25,000. Requires $25,000 (tax-free) maximum pension for year 1. After year 1, can revert to minimum pension to meet living expenses $48,341 Total super contribution (including SG) in year 1, however…. After July 2012 and future years concessional contributions limit reduces to $25,000 from all sources

Case study: William William - $130K Package and $250K in super No action Salary sacrifice + TTR Package $130,000 Salary sacrifice -$38,300 SG $11,700 TTR income year 1 - $23,555 Net income year 1 $92,000 Balances end of year 1 Accumulation super $276,110$43,847 TTR account balance $243,121 Difference +$10,858 Assumptions: Super/ Pension investments earn 4.4% income 2.6 % growth p.a. pre-tax

Case study: William William - $130K Package and $250K in super No action Salary sacrifice + TTR Balances end of year 1 Accumulation Super $276,110$43,847 TTR Pension $243,121 Total Superannuation Balance $276,110$286,968 Difference +$10,858 Balances end of year 5 Accumulation super $398,188$248,854 TTR Pension $210,458 Total Superannuation Balance $398,188$459,312 Difference +$61,124

Your super checklist Client age Strategies< Personal contribution to $150K p.a. Use of averaging rules to $450K Salary sacrifice Personal deductible contributions Co-contributions Transition to retirement pensions Tax effective income streams Gearing in super

19 Asgard Capital Management Limited ABN , AFSL (Asgard). Information current as at 1 January This publication provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This presentation contains general information only and does not take into account your personal objectives, financial situation or needs. You should therefore consider whether information or advice contained in this presentation is appropriate to you having regard to these factors before acting on it. You should seek personalised advice from a financial adviser and your accountant before making any financial decision in relation to matters discussed in this presentation. The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. Consider our disclosure documents which include our Financial Services Guide available on © Asgard Capital Management Limited 2012.