The leap from work to retirement means different things to different people. Some can’t wait for newfound freedom, others want to gradually ease into it, and some have no wish to leave the workforce at all.

Fortunately, non-commutable allocated pensions (NCAPs) can make the transition to retirement easier for people who have reached preservation age (currently age 55). If you have reached preservation age, you are able to access your super as an income stream without having to retire permanently. Best of all, even if you’re not looking to retire, using an NCAP can produce some tax benefits and potentially give your super a boost.

The NCAP advantage

An NCAP can allow you to salary sacrifice a significant proportion of your income into superannuation and to supplement this amount with a regular income stream from an NCAP.

An NCAP advantage emerges because of the lower rates of taxation generally applied to superannuation, compared with employment income, which is taxed at your marginal tax rate. This advantage is further increased because any investment earnings within an NCAP (ie where super money is now in pension phase) will be tax free.

An important feature of an NCAP strategy is that your take-home income can be structured to be exactly the same as was received prior to the strategy.

An NCAP strategy can be beneficial for many individuals who have reached 55 years of age. However, the overall benefit will vary, depending on your income and your level of existing superannuation savings.

A super boost and tax savings

Sarah, aged 55, works as an IT consultant for an international computer software company.

Despite many of her friends readying themselves for retirement, she enjoys her work and has no intention of leaving any time soon. Looking to the long term, Sarah imagines she may retire from full-time work when she turns 65. Currently, she earns $110,000 per annum and has $450,000 in her super account.

Argentis recommends that Sarah begins salary sacrificing a significant portion of her regular income into superannuation to build the amount of funds available for her retirement, without reducing her take-home income.

By beginning an NCAP, Sarah can supplement her income from her current superannuation fund, while sacrificing a substantial pre-tax amount of her income into super. Sarah is surprised at the suggestion; how can taking money from super and putting it back again boost the amount in her super?

The tax advantages of an NCAP mean that her investment earnings and growth will be tax free. In addition, the NCAP income payment is concessionally taxed, resulting in less personal income tax being paid by Sarah.

Using this strategy, Sarah can potentially boost her superannuation by around $150,000 by the time she is 65.

Assumptions
The projections in this strategy are based on various assumptions, including but not limited to: maximum pension payment = $45,000 in year 1; salary sacrifice = $57,392 in year 1; no change in take-home pay before/after strategy; no change in risk profile; estimated investment return (Growth portfolio) = 6.4% pa (super), 7.3% pa (pension); all investment earnings figures are after tax and after fees; no change in Super Guarantee contributions, ie 9% of $110,000; ongoing administration fees are not included.

Note that payment received from an NCAP is eligible for a tax offset of up to 15 per cent if aged 55–59. The payment is tax free if over age 60.

If you’d like to explore whether an NCAP strategy can give your retirement savings a boost, please give us a call.