How Salary Sacrifice Works With a TTR Strategy

A salary sacrifice TTR strategy shifts part of your employment income into super at a lower tax rate, while using pension payments to maintain your cash flow.

It works because of the difference between:

• Your marginal tax rate, including Medicare levy, and
• The 15 percent contributions tax applied inside super.

It does not make your super magically tax free. It is a structured tax differential strategy.

If you need the broader framework first, read: Transition to Retirement Explained

---

The Basic Mechanics of a TTR Salary Sacrifice Strategy

A TTR salary sacrifice strategy usually follows four steps:

1. You reach preservation age.
2. You start a transition to retirement pension.
3. You increase salary sacrifice contributions into super.
4. You draw pension income to replace the reduced take home pay.

You now have two accounts operating at the same time:

• An accumulation account receiving contributions.
• A pension account paying income.

Employer Super Guarantee contributions continue as normal.

You cannot contribute directly into the pension account.

---

Contribution Caps Still Apply

Concessional contribution caps apply whether or not you have a TTR.

This includes:

• Employer Super Guarantee contributions
• Salary sacrifice contributions
• Personal deductible contributions

As at current law, concessional contribution caps are annual limits set by legislation and may change over time.

If you exceed the concessional cap:

• Excess contributions may be included in your assessable income.
• Additional tax can apply.

If your income is high enough, Division 293 tax may apply, which effectively increases contributions tax above 15 percent.

Unused concessional cap amounts may be available under carry forward rules, subject to eligibility.

Without genuine room under the cap, a TTR salary sacrifice strategy often loses its advantage.

---

How the Tax Benefit Is Created

Let’s simplify it.

Imagine:

• You earn 120,000.
• Your marginal tax rate including Medicare levy is meaningfully above 15 percent.
• You increase concessional contributions by 10,000 through salary sacrifice.

Instead of paying your marginal tax rate on that 10,000, it is taxed at 15 percent inside super, unless Division 293 applies.

You then draw pension income from the TTR to maintain your take home pay.

If you are over 60 in a taxed fund, those pension payments are generally tax free in your hands.

More detail on pension tax treatment here: Tax on a Transition to Retirement Pension

The benefit comes from the tax rate gap.

In most cases, the improvement is incremental rather than dramatic. Over several years, incremental differences compound.

---

Withdrawal Limits Still Shape the Strategy

While running a TTR:

• You must withdraw at least the minimum annual pension percentage.
• You cannot withdraw more than 10 percent of the TTR balance each financial year.

If the pension balance is modest, the 10 percent cap can limit how much income you can replace.

For the full withdrawal framework: TTR Minimum and Maximum Withdrawal Rules Explained

At age 65, the withdrawal structure changes: What Happens to a TTR at Age 65?

---

A Practical Example

Imagine you are 60:

• Salary: 130,000
• Super balance: 600,000
• You salary sacrifice an additional 15,000

That 15,000 is taxed at 15 percent inside super unless Division 293 applies.

You then draw pension income from the TTR to offset the reduction in take home pay.

If the strategy runs for several years and fees are controlled, the balance inside super at retirement may be higher than if you had not implemented the strategy.

If you are within a year or two of retirement, the benefit may be minimal.

Time horizon matters.

---

When a TTR Salary Sacrifice Strategy Works Best

This type of strategy is more likely to work when:

• You are over 60.
• Your marginal tax rate is meaningfully above 15 percent.
• You have genuine room under concessional contribution caps.
• You plan to work for several more years.
• Fees are modest.

It is less effective if your marginal tax rate is close to 15 percent, or if the strategy runs for too short a period.

---

When It Does Not Make Sense

A TTR salary sacrifice strategy may not make sense if:

• You are already contributing up to the concessional cap.
• Division 293 significantly reduces the tax gap.
• Fees increase materially.
• The 10 percent withdrawal cap restricts income replacement.

Sometimes leaving super in accumulation and contributing normally produces a similar result with less complexity.

For broader strategic risks: Common TTR Mistakes

---

Always Model the Outcome

The difference between a strong TTR salary sacrifice strategy and a weak one is often small assumptions.

Before implementing one:

Use the Transition to Retirement Calculator

Run scenarios.

Adjust contribution levels.

Test different time horizons.

The numbers should justify the structure.

---

FAQs

How does salary sacrifice work with a transition to retirement pension?

You increase concessional contributions through salary sacrifice and use TTR pension payments to maintain cash flow while potentially benefiting from lower tax inside super.

Does salary sacrificing with a TTR reduce tax?

It can reduce tax if your marginal tax rate is higher than the 15 percent contributions tax, but the benefit depends on caps, time horizon and fees.

Do concessional contribution caps still apply with a TTR?

Yes. Concessional contribution caps apply whether or not you have a transition to retirement pension.