A transition to retirement pension lets you access some of your super from age 60, without fully retiring. It's designed to ease you into retirement, whether that means working fewer hours or simply topping up your income while you keep working full-time.
Key Takeaways
- You can start a TTR pension from age 60, Australia's preservation age for everyone now.
- Withdrawals are capped between 4% and 10% of your balance each year.
- Pension payments are tax-free at 60 and over, but investment earnings inside the account are still taxed at up to 15% until you fully retire.
What is a transition to retirement pension?
A transition to retirement pension, or TTR pension, lets you draw a regular income from your super once you reach preservation age, without having to retire or leave your job. It's officially known as a transition to retirement income stream, or TRIS, and according to the ATO, it's structured so you can't take it as a lump sum while you're still working.
Most people use it one of two ways: reducing their work hours and topping up the drop in pay, or continuing to work full-time and using the extra income stream to support additional super contributions. If you'd like a refresher on how superannuation works before diving into a TTR strategy, read more about what superannuation is and how it works.
Check if you're eligible for a TTR pension
You can start a TTR pension once you reach your preservation age, which is 60 for effectively every Australian now. You also need to still be working, in some capacity, since a TTR pension is designed for people who haven't fully retired yet.
Once you turn 65, or if you fully retire beforehand, your TTR pension automatically converts into a standard account-based pension, with different, generally more favourable, tax treatment.
It's worth reviewing your broader superannuation strategy alongside a TTR pension, since the two decisions genuinely affect each other.
Understand the pros of a transition to retirement strategy
A TTR pension gives you real flexibility around how you wind down toward retirement. You can:
- Reduce your working hours without a proportional drop in take-home income
- Receive pension payments completely tax-free, once you're 60 or older
- Keep growing your super through salary sacrifice, even while drawing down part of it
- Ease into retirement at your own pace, rather than stopping all at once
Understand the transition to retirement disadvantages first
A TTR pension isn't free of trade-offs. Drawing down your super earlier means less is left to grow for later, especially if you withdraw close to the maximum 10% each year.
It also adds complexity. You'll be managing two accounts instead of one, and starting a TTR pension can affect insurance held inside your super or your eligibility for Centrelink support, depending on your circumstances.
See how the tax works, with a worked example
Take a hypothetical member, aged 62, who transfers $300,000 of their super into a TTR pension and continues working part-time. Their pension payments are completely tax-free, since they're over 60.
The earnings on the $300,000 still sitting in the TTR account are a different story. Those earnings are taxed at up to 15%, the same as a standard super accumulation account, because the money hasn't yet moved into the retirement phase. That changes automatically once they turn 65 or fully retire, at which point the earnings become tax-free too.
Weigh the pros and cons at a glance
Here's how the upside and the trade-offs stack up against each other.
Is a TTR pension worth the trade-off?
A transition to retirement pension can be a genuinely useful way to ease into retirement, but it isn't as simple as tax-free income for working less. The pension payments are tax-free from 60. The earnings inside the account aren't, not until you've fully made the shift into retirement.
If you're weighing up whether a TTR strategy suits your situation, a Morgans adviser can walk you through the number before you decide anything. Find a Morgans adviser to get started.
Frequently Asked Questions
Can I access a TTR pension if I haven't reduced my working hours?
Yes, you can start a TTR pension even if you're still working full-time. Many people use it purely to boost their super through salary sacrifice, without changing their hours at all.
What happens to my TTR pension when I turn 65?
It automatically converts into a standard account-based pension, whether or not you've fully retired. From that point, the earnings inside the account become tax-free as well as the pension payments.
Does a TTR pension affect my Age Pension eligibility?
It can, since a TTR pension is assessed under Centrelink's income and assets tests. It's worth checking your specific position before starting one, especially if you're close to qualifying for government support.
Can I stop a TTR pension once I've started one?
Generally not by converting it back to a lump sum, since TTR pensions are non-commutable while you're still working, meaning you can't cash them out early. You can usually stop the payments or roll the balance back into your accumulation account instead.
Do I need a separate super account to start a TTR pension?
Yes, most funds require you to split your balance between an accumulation account and a separate TTR pension account. This is part of why a TTR strategy adds a layer of complexity.
Is a TTR pension worth it if I'm not planning to reduce my hours?
It can be, mainly for the tax-free pension payments and the ability to salary sacrifice more into super. Whether it's worth it depends on your income, your super balance, and how many years you have left until retirement.
References
Australian Taxation Office: Transition to retirement
Moneysmart: Retirement income and tax
This article contains general advice only and does not take into account your individual objectives, financial situation, or needs. You should consider whether this advice is appropriate for you and seek personal advice from a Morgans adviser before making any financial decisions.
