Transition to Retirement Pensions (TTRP) are a great way to save tax especially if you continue to work full time. This blog is aimed at people who are over 60 or nearing 60 and are going to continue to work full or even part time after this milestone. The main question we receive about this strategy, is whether it is actually legal and is the strategy difficult to implement? We can tell you it is absolutely legal and it is actually really easy to set this strategy up and reap the rewards.
Supercharge your super savings (and save tax in your individual tax return)
Anna is 60, she earns $65,000 a year and has $250,000 in super. She has recently started a TTRP pension, of 10%.
How can Anna reduce her tax by salary sacrificing contributions, see the workings below;
Tax payable without making super contributions:
Taxable income $65,000
Tax on salary: $12,672
Tax payable with making super contributions:
Less Super salary sacrifice: $25,000 (this is the whole amount of the pension she receives from her TTRP pension)
Taxable income: $40,000
Tax on salary: $4,547
Tax on super contributions 15%: $3,750
Total Tax: $8,297
Total tax saved compared to no salary sacrifice: $4,375
Savings on super earnings
If you don’t start a TTRP pension when eligible, you will be paying unnecessary tax in super.
Tax on super earnings without TTRP pension
Assume you super returned 7%.
Super earnings: 17,5000
Tax on earnings 15%: $2,625
Comparison and total savings
Start TTRP but do not salary sacrifice super contributions tax saved: $2,625
Start TTRP and do salary sacrifice super contributions tax saved: $7,000
As shown the tax savings you can make by starting a TTRP pension and salary sacrificing super is substantial, the savings are even great for higher super balances. We have dedicated a whole blog on how to set this strategy up.
The bottom line, if you are 60 or older and currently working you need to speak with us on how this strategy may benefit you!