Right now, the step between your ‘working life’ and your ‘retirement life’ has become a great time to boost your superannuation savings.  This is thanks to the Federal Government’s ‘transition to retirement’ initiative.

In a nutshell, if you’re over 55 and your employer allows it, you can salary package a portion of your employment income and simultaneously draw down on your superannuation.  This is done by using a Non-Commutable Allocated Pension (NCAP).

Importantly, there is no requirement for you to reduce your working hours.  This means it’s possible to salary package a substantial portion of your salary to superannuation, while still receiving a monthly private pension payment from your superannuation fund.

Because of the tax benefits, a NCAP strategy can boost your superannuation savings without impacting on your take-home pay or you may decide to reduce your working hours.

The 2006 NCAP Budget ‘booster’

Thanks mostly to the 2006 Federal Budget announcement that superannuation withdrawals will be tax-free after the age of 60, the case for using a NCAP strategy will become even more compelling from 1 July 2007.

SALLY’S NCAP ADVANTAGE

Sally is 55 years old and works fulltime in the hospitality industry.  She earns $80,000 p.a and during her working life she has accumulated $300,000 in superannuation.  We explained to Sally that it is possible for her to receive exactly the same take-home income using a NCAP and to still boost her superannuation savings.  Figure 1 shows how a NCAP would work in the first year, assuming Sally receives the maximum NCAP payment of $26,090.

Even better, we explained to Sally that over the projected 10-year period, a NCAP strategy can boost her superannuation savings by $70,000. 

Figure 1: Sally’s NCAP Benefit

Assumptions:  Age = 55; Salary = $80,000 p.a; Accumulated super = $300,000, rolled over to NCAP on 1 July 2006; Maximum Pension Payment = $26,090 in Year 1; Salary packaging to super = $33,263 in year 1; No change in take-home income before/after strategy; Estimated return on super = 7.4% after fees & before tax; No change in employer super contributions. ie: 9% of $80,000.