If you’re 55 or over and still working, you can build your super under the Transition to Retirement rules.
Depending on your circumstances this could help you:
- boost your retirement savings and reduce the amount of tax you pay, OR
- reduce your working hours and supplement your income from your super.
The key to this strategy is salary sacrificing into super, and then making up for your reduced take home pay from your existing super payments by transferring them to an account based pension.
You save tax because the money you salary sacrifice is taxed at the low rate of 15% - not at your (higher) income tax rate and the earnings on your existing super savings, which you have transferred to an account based pension are not taxed at all.
How it works
You have two accounts. One account is your super account into which Superannuation Guarantee (SG) contributions from your employer are paid, plus any salary sacrifice payments.
The other is an AustralianSuper Pension account. This is set up with money from your super account (at least $10,000) to provide a regular income from your super in the form of a pension. The funds in both accounts continue to receive investment returns and tax benefits.
This option could allow you to supplement your take-home salary with regular payments from your pension, without impacting your income.
Case study: Peter saves $3,000 a year in tax and boost his super
Peter has just turned 55 and is keen to boost his super through salary sacrifice. He works as a greenkeeper and is looking forward to spending more recreation time on the golf course when he retires.
With the help of his financial adviser, Peter implemented a transition to retirement strategy which saved him over $3,000 a year in tax that he redirected to his super.
| Peter’s total income |
Before transition to retirement ($) |
After transition
to retirement ($) |
| Salary |
60,000 |
60,000 |
| Income from super pension |
Nil |
8,962 |
| Less salary sacrifice contribution |
Nil |
25,000 |
| Taxable income |
60,000 |
43,962 |
| Peter’s tax |
|
|
| Income tax |
11,550 |
6,739 |
| Medicare levy |
900 |
659 |
| 15% contributions tax |
810 |
4,560 |
|
Less tax offsets:
- Low income
- Mature age worker
- Pension
|
-300
-150
Nil
|
-942
-150
-1,344
|
| Total tax |
12,810 |
9,5221 |
| Total tax savings |
|
3,287 |
| Peter’s super |
|
|
| Salary sacrifice contribution |
Nil |
25,000 |
| 9% SG contribution |
5,400 |
5,400 |
| Less 15% contributions tax |
810 |
4,560 |
| Net super contribution |
4,590 |
25,840 |
| Less pension income |
Nil |
8,962 |
| Overall addition to super |
4,590 |
16,878 |
| Peter’s take-home pay |
|
|
| After-tax salary |
48,000 |
39,000 |
| Pension income |
Nil |
8,962 |
| Total income |
48,000 |
47,962 |
Peter adds over $3,000 more to his super each year, with just $38 less take-home pay.
Calculations are based on 2010/11 tax rates and include the 1.5% Medicare levy, the applicable tax offsets and amounts are rounded to the nearest whole dollar. Assumption is that 100% of Peter’s personal balance is taxable. This is an example only and should not be taken as financial advice in any way. You need to assess your own situation and a financial adviser would be able to help you and provide calculations that meet your circumstances.
Next steps
Want to know more?
- Use our calculator to see how a Transition to Retirement Pension could work for you.
- Read the Pension Member Guide for further detail and case study examples showing how others have used this savings strategy on their road to retirement.
To open a pension account, complete the Application form online by logging in to your account.