This transition to retirement strategy aims to use the tax effectiveness of super to increase your total super savings without having to reduce your take-home income along the way.
It can be an effective way to build an ancillary super benefit that can support the money you get from CSS (pension payments and/or lump sum) in retirement.
It involves opening a product known as an account-based income stream. You get regular payments from your income stream account balance and make voluntary before tax contributions into an accumulation super account (such as PSSap) via a salary sacrifice arrangement with your employer.
Benefits can include:
- potentially higher final super benefit (outside of CSS)
- super (tax free from age 60) as a regular income stream while still working and making voluntary contributions (eg salary sacrifice) to another fund (such as PSSap)
- tax-free investment returns within your income stream account.
It’s possible to take up this strategy in the Australian Government super environment using the income stream product available to CSS members, called Commonwealth Superannuation Corporation retirement income (CSCri). CSCri is offered through PSSap (the Australian Government’s accumulation super scheme for eligible public servants).
You can also open a PSSap Ancillary account to make eligible contributions such as salary sacrifice contributions (in addition to your fortnightly member contributions to CSS).
See the CSCri website to open a CSCri income stream product.
See the PSSap website to open a PSSap Ancillary account.
How this strategy works
How to take up this strategy in the Australian Government super environment:
You must be a CSS contributor who:
- has reached preservation age (age 60 if born on or after 1 July 1964)
- can transfer a minimum of $20,000 (but not from CSS) into an income stream product called Commonwealth Superannuation Corporation retirement income (CSCri).
Open a CSCri account with a minimum starting balance of $20,000:
- get regular income stream payments from CSCri (monthly, quarterly, half yearly or annually) between minimum and maximum annual payment amounts
- salary sacrifice a portion of your before-tax income into an accumulation super account such as PSSap (but not CSS, which is a defined benefit scheme) each pay period (while staying within your annual contribution limits to avoid extra tax).
Take home income
Because of the tax-effectiveness of salary sacrificing into super while getting income payments from super, you can increase your total super savings outside of CSS and enjoy a similar take-home income. It’s most effective from age 60 because your income payments will be tax free.
Final super savings outside of CSS
How much you can save will depend on factors such as your salary, the level of take-home income you need, the amount of super you have, investment returns, the rate and amount of fortnightly member contributions made to CSS, if you are age 60 or not (when income payments from super, but not CSS, become tax-free) and the length of time until you retire.
To maximise your benefit, consider:
- how long until you wish to retire
- how much you can add each pay period in salary sacrifice (within your annual limits)
- how much income you need to live on before retirement.
Avoid extra tax
There are annual super contributions limits in place which restrict the amount of super people can contribute each financial year at a low tax rate.
Your CSS fortnightly member contributions are included under these limits.
Any excess contributions may be taxed at the highest tax rate of 48.5% including the Medicare levy.
See the Tax and your CSS super [PDF 406 KB] booklet to view your annual contribution limits.
What happens to this strategy when you stop work and permanently retire?
Because you no longer work for a CSS or PSSap participating employer, you can no longer save into either scheme. Instead, you can consolidate your lump sum super savings (those amounts in addition to your potential CPI-indexed pension from CSS) into an accumulation super account such as PSSap before you permanently retire. Then you can open a single retirement income stream with your consolidated super to enjoy:
- regular payments to meet your income needs
- no set maximum annual income amounts
- tax-free payments from age 60
- ad-hoc withdrawals when needed
- investment choice
- tax-free returns
- online account management.
See the CSCri website to join the income stream product for CSS members called Commonwealth Superannuation Corporation retirement income (CSCri). This product can be used as either a transition or a regular retirement income stream.
We encourage you to first speak with a financial planner to ensure this transition strategy is appropriate for your needs, circumstances and retirement planning goals.
See financial advice to learn about the personal financial advice service offered to CSS members by Industry Fund Services.