Page 8 - Wealth-Adviser-Issue-123 (FWP)

ISSUE 123
OCTOBER 2025

Beginning a super income stream means transferring funds into a

retirement phase account where investment earnings are tax free. Minimum
annual payments, calculated as a set percentage of the account balance

(starting at 4 per cent under 65), must be withdrawn each year.

dubbed the Superannuation Withdrawal Rule Refresh, Transition‑to‑Retirement (TTR): Controlled
effective 20 October 2025 (subject to final ATO and Treasury Flexibility
implementation)—aim to unify fund reporting and reduce For Australians aged 60 or over but still employed, the
misclassified early releases. transition-to-retirement income stream offers limited
Key features as currently framed include: access. The ATO confirms that a TTR allows withdrawal
• Enhanced digital verification of identity and employ- of between 4 and 10 per cent of the account balance each
ment status through the MyGov-ATO link. financial year until full retirement or age 65.
• Revised hardship criteria allowing limited annual with- AustralianSuper notes that members often use a TTR to
drawals (up to $25 000) for verified severe hardship or “reduce working hours without reducing income, or con-
medical emergencies. tinue working while salary-sacrificing to build super faster.”
• Penalty regime updates of up to 22 per cent tax on unau- It remains a non-commutable income stream, meaning
thorised early withdrawals below preservation age. lump-sum cashing isn’t permitted until a full condi-
• Greater transparency around fund-to-ATO data sharing tion of release—such as retirement or turning 65—is met.
to detect non-compliant early access. Once retirement status is achieved (called nil cash-
While these measures are not yet legislative law, Treasury ing restriction), the TTR automatically converts to a
has signalled implementation through the 2025–26 Budget retirement phase pension, lifting earnings into the tax-free
compliance track. environment.
Pension Mode: Turning Super Savings into Sustainable Withdrawals and the 4 Per Cent Rule
Income Supercharging the 4 Per Cent Rule expands on how
Once eligible, members typically choose between taking retirees can maintain steady income while guarding against
a lump sum or setting up an income stream. According to sequencing and inflation risk. “The rule isn’t about a fixed
the ATO (2025), retirees “can usually choose to withdraw percentage but a disciplined withdrawal rate adjusting with
super as a lump sum, income stream, or combination of markets and spending needs,” notes author James Gruber.
both,” with tax effects varying accordingly. Australian planners now typically model between
Beginning a super income stream means transferring 3.5 and 4.5 per cent annual drawdowns, adjusted upward in
funds into a retirement phase account where investment strong market years and pared back amid volatility. Aligning
earnings are tax free. Minimum annual payments, cal- withdrawals with market cycles and tax conditions helps
culated as a set percentage of the account balance (start- preserve capital longevity.
ing at 4 per cent under 65), must be withdrawn each year. ATO guidance supports this planning flexibility: with-
Failure to meet these minimums causes the account to lose drawals can be increased, paused, or partially commuted,
its tax-free pension status for that year. subject to the fund’s governing rules and minimum payment
From age 60, all withdrawals from a taxed source are obligations.
tax-free, and income offsets continue to apply for untaxed
elements (15 per cent for taxed components; 10 per cent for Sequencing, Tax, and Centrelink Interactions
untaxed components). Earnings from lump-sum reinvest- Strategic withdrawal planning can materially influence
ments outside super revert to normal investment taxation. long-term tax and Age Pension outcomes:
With the transfer balance cap fixed at $1.9 million • Use tax‑free super income first once eligible, preserving
since July 2023, transferring more than this total into taxable investments for later years.
pension accounts triggers an excess transfer balance tax. • Coordinate with the Age Pension assets and income tests;
This makes fine-tuning between accumulation and pension premature drawdowns may lower entitlements.
accounts a vital step in adviser-led strategy. • Manage taxable vs tax‑free components—withdrawals are

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