To help you understand more about how a PREP account works, please read:
Transitioning to retirement with a PREP
Pensions aren’t always for when you fully retire. If you have reached your preservation age and you are looking for a strategy to reduce your working hours without reducing your income, or boost your superannuation savings, then the APSS Pre-retirement pension (PREP) might be just what you've been looking for. Depending on your age, there may be tax advantages to opening up a PREP account in the APSS.
How does it work?
Under superannuation law, you can only access your super once you reach your preservation age and retire permanently from the workforce or meet another condition of release (such as ceasing employment after age 60, reaching age 65 or permanent incapacity). Your preservation age depends on the year that you were born.
An APSS PREP account lets you receive some of your super as a pension while you’re still working. This could help you:
- Supplement your salary if you want to reduce your work hours in the lead up to retirement.
- Pay more of your salary into super via salary sacrifice (subject to contribution rules) to take advantage of the tax concessions available. You can then offset the reduction in your salary through the income received from your PREP account.
There are however, some rules around transition to retirement pensions like the APSS PREP account:
- You must have already reached your preservation age.
- You must use your super to commence a non-commutable pension (like the APSS PREP), which means that you cannot make lump sum withdrawals or convert the account balance to a lump sum until you meet a further condition of release (like permanently retiring).
- By law there is a minimum amount (percentage of your account balance), that you must receive in pension payments each year. In addition, your pension payments each year cannot exceed a maximum of 10% of your account balance.
- Once you’ve started a PREP account, you cannot put extra funds into your pension account although you can open additional PREP accounts (which are also subject to the minimum and maximum requirements).
What you should also consider about a transition to retirement strategy like the PREP
- Accessing your super early may also mean you use up your super savings earlier. You may need to look at other sources of income later in life.
- There are limits on the amount that can be contributed to super without incurring additional tax. To find out more see contribution limits.
- If you are under age 60, tax will usually apply to pension payments received from your PREP account.
- There may be significant tax implications with this type of strategy.
For example, super changes in 2017 mean that up to 15% tax will be payable on the investment earnings of your member savings when a tax exemption on all ‘Transition to Retirement’ pensions will be removed.
It is important to consider your objectives, financial situation and needs when making plans for your retirement. We recommend you obtain professional financial advice and tax advice before making any decisions to commence an APSS PREP.
If you have any general queries about APSS Pensions, call SuperPhone on
1300 360 373 between 9am and 5.30pm EST weekdays.