Superannuation income streams

Superannuation – income streams. I recently had a conversation with a friend that sparked my interest in this topic. I know it sounds amazing but I was surprised to find out you can increase the size of your super fund without putting any extra money in!

Transition to retirement pension

We were going for a bike ride and he told me he was starting a Transition to Retirement pension which means he was going to work part time and still get a full time wage by drawing a pension from his super fund for the days he doesn’t work. The other great thing about this pension is once you are over 60 years old all superannuation is tax free. Once you have decided to retire fully it is also easy to change the pension from a Transition pension to a full Retirement pension. To do this you have to declare yourself retired which means for tax purposes you can no longer earn any income from working. This is an important decision to make as now in Australia most people will have to wait until 67 years old to be eligible for the Government funded Aged Pension.

Working income stream

A Working income stream can be started for someone who wants to stay working but increase their super and gain a tax advantage as well.

This is how it works – (This info is only relevant for my super fund ESS Super but many funds offer similar products.)

• You must have a balance of at least $50,000 and no more than $1.6 million.
• You can draw a minimum of 4% and maximum of 10% of your super balance as an ongoing payment.
• You can only draw a maximum of $25,000 per year which also includes your employers compulsory contributions (currently 9.5% of salary).
• You can then tell your employer to Salary Sacrifice an equal amount back into your super so you are no worse off financially.

This may seem like a pointless exercise but because of the tax advantages it will actually add money to your super account. How much depends on the size of your super account and the amount you draw in a pension (remember a maximum of $25,000 per year which also includes your employers compulsory contributions- currently 9.5% of salary).

To make it sound a little simpler, look at it this way –

• Money into Super – salary sacrifice.
• Same amount of money out – to your bank account
• Add tax saving (because you are earning less by reducing your wage)
• More money will go into your Super Fund.

Also, don’t forget what I have already mentioned about being over 60 years old. You pay NO tax on your superannuation pension payments after 60 so this strategy becomes even better and will improve the balance of your super account even more.

Salary Sacrifice

I thought I would briefly mention how salary sacrifice works as it is an essential element of the super Working Income Stream. A salary sacrifice means to ask your employer to withdraw money from your wage before tax and pay it directly to your superannuation account. Once you decide to go ahead with a working income stream you need to tell your employer to start to salary sacrifice from your wage. The easiest way to match the payments for the income stream is to sign up for the pension with your super fund and draw the first payment. Once you see how much is in your bank account you can fill out the relevant form with your employer and put exactly the same amount as you receive from the pension as a salary sacrifice.

I found a useful salary sacrifice calculator  which will help you understand the concept. Please feel free to use this calculator or any of the calculators on this site at the Free Calculators page.