Transition to retirement (TTR) lets you draw a regular income from your super once you reach preservation age, which is the age you can first access it, without leaving work. Some people use it to work fewer hours. Others keep working full-time and use it to build super faster.
Key takeaways
- You can start a TTR pension at preservation age, which is now effectively 60 for anyone still working toward it.
- Annual TTR pension payments must sit between 4% and 10% of your account balance.
- Payments are tax-free from 60, but earnings inside the account are still taxed at up to 15%.
- Your TTR pension converts to a standard retirement-phase pension at 65 or when you retire.
Understand how a TTR pension works
A TTR pension is formally called a transition to retirement income stream, or TRIS. You move part of your super into an account-based pension and keep the rest in your accumulation account. Most funds need both accounts, so employer contributions keep arriving.
Most people use it one of two ways:
- Reduce hours and top up the drop in pay with pension payments.
- Keep working full-time and put more into super through salary sacrifice.
For example, a 4% minimum on a $300,000 balance is $12,000 a year, and the 10% maximum is $30,000.
The pension is non-commutable, which means you generally can't take it as a lump sum while you're still working. It's paid as regular income, as the ATO explains.
Check the transition to retirement age and rules
Preservation age is 60 for anyone born on or after 1 July 1964. Anyone born earlier has already passed theirs. To start a TTR pension you need to:
- Have reached preservation age.
- Still be working in some capacity.
- Take annual payments of at least 4% and no more than 10% of your balance, per Moneysmart.
At 65, or if you fully retire sooner, the pension moves into the retirement phase. Our guide to accessing your super and conditions of release covers the other triggers.
Weigh the benefits of a TTR pension
- Ease into retirement without a full drop in income.
- Receive pension payments tax-free from 60.
- Keep growing super through salary sacrifice while drawing part of it.
- Move automatically into a standard pension at 65 or when you retire.
Consider who a TTR strategy may suit
A TTR pension tends to be considered by people who:
- Want to cut their hours but keep their income steady.
- Plan to keep working and add to super through salary sacrifice.
- Have reached preservation age and want more flexibility before retiring.
Salary sacrificed contributions count toward your concessional contributions cap, so check how much room you have before you commit.
Weigh the disadvantages first
A TTR pension isn't free of trade-offs:
- Drawing super earlier leaves less to grow, especially near the 10% maximum.
- Earnings inside the account are taxed at up to 15% until the retirement phase.
- You manage two accounts instead of one.
- Insurance held inside super, or Centrelink assessments, may be affected.
See how the tax works with an example
Take a hypothetical member, aged 62, who moves $300,000 into a TTR pension and keeps working part-time. Their pension payments are tax-free because they're over 60.
The earnings on that $300,000 are taxed at up to 15%, like an accumulation account, because the money hasn't reached the retirement phase. That changes at 65 or when they fully retire. This is an illustration only, not a projection.
Ask the right questions before you start
- How much income do I actually need each year?
- How would drawing down now affect my balance at 65?
- Does my fund offer a TTR pension, and what does it charge?
- What happens to any insurance held in my super?
- How might it affect my Age Pension eligibility later?
Avoid common TTR mistakes
- Starting without checking how it affects insurance inside your super.
- Drawing more than you need, which leaves less to grow.
- Forgetting that earnings in the account are still taxed.
- Not reviewing the strategy as 65 approaches.
Review your wider super strategy
A TTR pension and your broader superannuation strategy affect each other, so it's worth looking at them together. If you hold a self-managed fund, trustees carry extra obligations, and our SMSF service covers how that works.
Questions about whether your balance can stretch? Read more about how much super is enough, and our guide to financial planning for retirement maps the wider decisions.
Whether a TTR strategy suits you depends on the numbers. A Morgans adviser can walk you through them before you decide anything, so find a Morgans adviser to start.
Frequently asked questions
Can I start a TTR pension if I haven't reduced my hours?
Yes, you can start one while working full-time. Many people use it to boost super through salary sacrifice without changing hours.
What happens to my TTR pension when I turn 65?
It moves into the retirement phase, and the earnings inside the account become tax-free as well as the payments. Check with your fund how it handles the switch.
Does a TTR pension affect my Age Pension eligibility?
It can, because a TTR pension is assessed under Centrelink's income and assets tests. Check your position before you start, especially if you're close to qualifying.
Can I stop a TTR pension once I've started?
Generally you can't cash it out as a lump sum while working, but you can usually stop payments or roll the balance back to accumulation. Confirm the options with your fund.
Do I need a separate super account to start a TTR pension?
Most funds need you to split your balance into an accumulation account and a TTR pension account. That split is part of why a TTR strategy adds complexity.
