Retirement Rules
The transition to retirement rules were introduced to allow Australians to gradually shift from full-time work to retirement. They provide access to superannuation in the form of a pension income stream before fully retiring, helping to maintain lifestyle stability while still working.
Overview
Once you reach age 60, you may commence a Transition to Retirement (TTR) pension using your superannuation balance. This pension provides a steady income stream that can supplement wages or be used as part of a tax-effective contribution strategy.
Unlike previous rules, retirement is no longer required before accessing super. TTR pensions were designed to encourage reduced working hours while extending workforce participation, easing long-term reliance on social security.
Requirement
The minimum eligibility age for starting a TTR pension is 60, also known as the preservation age. Once this age is reached, you can begin a pension regardless of whether you are working full-time, part-time, casually, or not at all.
Pension Limits
A TTR pension requires annual income withdrawals between set thresholds:
- Minimum: 4% of the account balance as at 1 July each year (pro-rated if commenced part-way through the year).
- Maximum: 10% of the account balance as at 1 July each year (not pro-rated).
These limits apply until you fully retire or meet another release condition.
Pension Tax
Two tax treatments apply to TTR pensions:
- Earnings tax: Investment income and realised capital gains within the pension are taxed at 15%. Assets held for over 12 months receive a one-third discount, reducing capital gains tax to 10%. Unrealised gains are not taxed.
- Pension payments: Payments received once you are aged 60 or over are completely tax-free. Payments must reflect the taxable and tax-free ratios of your super balance and are withdrawn proportionately.
Lump Sums
TTR pensions cannot pay lump sums. Payments must be taken as pension income within the 4%–10% range. However, you may commute the TTR pension back into an accumulation account if needed. Payment frequency depends on the rules of your fund and may be scheduled monthly, quarterly, annually, or as otherwise permitted.
For those using a self-managed super fund (SMSF), payments can be irregular provided they meet the annual minimum and maximum requirements.
Contributions
No new contributions can be made directly into a TTR pension account. To continue contributing to super, an accumulation account must remain open. This is typically achieved by leaving a small balance aside when establishing the pension or opening a separate accumulation account.
Example
If you commence a TTR pension on 1 July with $500,000, your income limits are $20,000 (4%) to $50,000 (10%). If the balance falls to $472,300 the following year, the limits reset to $18,890 and $47,230 respectively.
If you instead start on 1 March, the minimum is pro-rated: $6,630 for that year, with the maximum still $50,000.
Strategic
Understanding and applying the rules allows you to:
- Supplement reduced income when shifting to part-time work.
- Implement tax-effective contribution strategies.
- Extend the life of your retirement savings.
A TTR pension provides a structured pathway into retirement while preserving lifestyle needs.
The transition to retirement rules are designed to balance flexibility and control. They allow Australians aged 60 and over to access income from super while still working, subject to annual limits and taxation rules.
At Point B Planning, we guide individuals aged 50 to 70 on how to structure a TTR strategy effectively, ensuring compliance while maximising financial outcomes in the lead-up to retirement.
