Australians aged 60 and over who are still working could potentially save thousands of dollars in tax each year by combining two existing superannuation rules. The strategy allows eligible workers to increase their retirement savings without necessarily reducing the money available for everyday expenses.
Financial adviser Ben Nash recently highlighted how a combination of salary sacrifice and a transition to retirement (TTR) pension could produce an annual tax benefit of $3,281 in one example.
The arrangement is particularly relevant for Australians approaching retirement who want to strengthen their superannuation balances but cannot afford a significant reduction in take-home pay.
However, the strategy is not an automatic government payment, and the savings depend on income, contribution limits, existing super balances and individual tax circumstances.
Tax-Free Rule
Australians who reach age 60 may be able to access certain superannuation benefits through a transition to retirement pension while continuing to work.
A TTR pension allows eligible people who have reached preservation age to draw regular payments from their existing superannuation savings.
For most people aged 60 and over, payments from a taxed super fund are received tax-free.
This creates an opportunity to combine pension withdrawals with additional before-tax super contributions.
Instead of accepting a permanent reduction in disposable income, workers can use TTR payments to replace some of the wages redirected into superannuation.
The approach can be especially useful for employees who want to save more during their final working years.
$110,000 Example
Consider a 60-year-old Australian earning $110,000 annually with approximately $350,000 in superannuation.
Under the 12% superannuation guarantee, their employer contributes around $13,200 annually, assuming their entire salary represents ordinary time earnings.
The example outlined by Nash uses a concessional contribution cap of $32,500 for the relevant financial year.
After accounting for employer contributions, the worker has $19,300 available for additional before-tax contributions, assuming no other concessional contributions.
Salary sacrificing this amount reduces taxable salary from $110,000 to $90,700.
However, directing money into superannuation also reduces the wages deposited into the employee’s bank account.
For someone managing housing costs, bills and family expenses, that reduction can be difficult to absorb.
How It Works
The second part of the strategy involves transferring some existing superannuation savings into a TTR pension.
In Nash’s example, the worker moves $300,000 into a transition to retirement account, leaving $50,000 in an accumulation account.
The accumulation account remains available to receive employer contributions and salary-sacrificed payments.
Under TTR rules, annual withdrawals generally must be between 4% and 10% of the pension account balance for someone aged under 65.
For a $300,000 starting balance, that means payments of approximately $12,000 to $30,000 annually, subject to the applicable calculation rules.
The worker can then choose a pension payment designed to offset the reduction in take-home wages.
This allows more salary to enter superannuation at concessional tax rates while pension withdrawals help maintain regular spending.
$3,281 Tax Saving
The financial advantage comes from the difference between personal income tax and the tax generally applied to concessional superannuation contributions.
In the example, redirecting $19,300 of salary into super reduces the employee’s personal tax liability.
At a 32% marginal rate, including the standard Medicare levy, that amount would otherwise attract approximately $6,176 in personal income tax.
When contributed to superannuation as a concessional contribution, the same $19,300 is generally taxed at 15%.
That produces contributions tax of $2,895, leaving $16,405 credited to super.
The difference between the two tax amounts is:
$6,176 − $2,895 = $3,281 annually.
That is approximately $63 per week in potential tax savings.
Importantly, the benefit is not paid separately by Centrelink or the Australian Taxation Office. It results from more favourable tax treatment of the contribution.
Income Protection
One attraction of the strategy is that pension payments can compensate for wages redirected into super.
In the original example, the employee uses a TTR withdrawal of approximately $13,124 annually to replace the reduction in take-home income.
The aim is to preserve everyday spending while directing additional money towards retirement savings.
However, the precise amount required depends on payroll arrangements, personal tax calculations and other income.
Workers should not assume their take-home pay will remain identical without calculating their individual circumstances.
TTR payments also reduce the existing pension balance, so the overall financial benefit must be assessed across both superannuation accounts.
Important Limits
Several conditions determine whether the strategy is suitable.
Workers must have reached the applicable preservation age and satisfy the rules for commencing a TTR pension.
For most current applicants, this means being at least 60.
The 10% annual maximum withdrawal limit generally applies while the pension remains subject to TTR restrictions.
Investment earnings within a TTR pension are generally taxed at up to 15% until the account enters retirement phase.
Once the relevant retirement condition is satisfied, different tax treatment may apply.
Workers must also consider administration fees, investment costs and insurance arrangements when dividing savings between accounts.
Contribution caps can change, and excess concessional contributions may create additional tax consequences.
Who Could Benefit?
The arrangement may appeal to Australians in their early sixties who remain employed, have meaningful superannuation savings and want to increase contributions before retirement.
It can be particularly relevant for workers whose marginal income tax rate exceeds the standard 15% contributions tax.
However, people with lower incomes, smaller balances or substantial existing contributions may receive less benefit.
The $3,281 saving is an illustration, not a guaranteed annual entitlement for everyone aged over 60.
Some workers may also qualify for other superannuation contribution arrangements that change the calculations.
What To Check
Before establishing a TTR strategy, Australians should confirm their current concessional contribution cap, employer payments and available super balance.
They should also check whether their super fund supports TTR pensions and what additional fees apply.
Tax calculations need to account for the Medicare levy, relevant offsets and any special circumstances.
Because contribution rules and pension requirements interact, licensed financial advice may help avoid costly mistakes.
For eligible Australians, combining salary sacrifice with a tax-free TTR income stream can provide a practical way to improve retirement savings.
The key benefit is the potential to reduce tax while maintaining access to enough income for everyday living.
With careful planning, workers approaching retirement may be able to make their final years of superannuation contributions more tax-efficient without making major changes to their lifestyle.
