Ian is 60 years old, earns a full-time salary of $100,000 pa and has $300,000 invested in super. He wants to boost his retirement savings in a tax-effective manner, but he doesn’t want to reduce his after-tax income. Currently Ian is paying $26,447* in income tax – giving him an after-tax income of $73,553.
The following table shows the difference it would make if Ian decided to do the following in 2012/2013:
- Salary Sacrifice $16,000 ($9,000 already being contributed as super guarantee)
- Commence a TTR pension with his $300,000 super balance
- Draw $9,840 from the TTR pension which is within the 3-10% band range allowed in 2012/13 and results in no change in overall after tax income.
* 2012/13 marginal tax rates.
As a result of this strategy, Ian’s take home pay has remained the same. However this strategy has given Ian a tax saving of $3,760 which will help him grow his retirement savings. This is reflected by a net increase in his superannuation savings for the year. Remember, that any earnings on the assets supporting Ian’s TTR pension are now tax-free. This compares favourably with the 15% tax on earnings that would otherwise be payable had the funds remained in accumulation phase.