Boosting superannuation savings while cutting tax might sound too good to be true, but for the over 55’s the Transition to Retirement pension is a legitimate strategy than can deliver extra benefits.

The TTR pension was originally introduced to assist people wanting to ease their way out of the workforce. You could work part time and top up your salary with income from your super.

But with a TTR pension you can also work full time, top up your super balance and draw a tax-free income.

This is how it works. An individual who has reached preservation age (currently 55 years) and is under 65 salary sacrifices into their super fund at the same time as drawing income from it via a TTR pension.
You may be asking, what’s the point of doing that?

Depending on your circumstances the strategy may improve your net income, reduce your tax and increase your end retirement benefit.
Whereas salary income is taxed at personal marginal tax rates, salary sacrifice super contributions are taxed at a maximum of 15 per cent. This is potentially lower than the tax charged if salary income is received in the hand. Once you turn 60 income stream payments are tax free.

A further bonus comes from paying zero tax on the investment earnings of assets supporting the TTR income stream.

Because of the potential tax benefits of putting money into super, there are caps on the concessional contributions you can make each year which includes salary sacrificed as well as the superannuation guarantee paid by an employer.

The annual general concessional contributions cap is $25,000 for the 2013-14 year. A special concessional cap of $35,000 applies to anyone aged 59 years or over on 30 June 2013.

If you would like to discuss how the TTR strategy might work for you, don’t hesitate to call.

Jim, 55, earns $100,000 a year and has $220,000 in super. He wants to keep working full-time for a few years to boost his retirement savings.

The strategy: Jim transfers most of his super to an account-based pension where he no longer pays tax on investment earnings; he salary sacrifices a large amount into super which saves income tax, but reduces his take-home pay; he withdraws a minimum of four per cent up to 10 per cent of his pension balance each year, which boosts his overall income back to his current level.

The benefits: Jim’s take-home income stays the same but he saves over $2000 in tax in the first year. This means he will have more money in super when he finally stops work.
If Jim keeps the strategy going past age 60 his tax savings will be significantly greater as he will no longer pay tax on the pension income.

Tax concessions

By replacing salary income with pension income, and redirecting some of your salary to super, you effectively take advantage of low tax rates inside super.

How it works