Transition Pension
Nearing retirement is both rewarding and uncertain. For many Australians, the challenge lies in maintaining income while reducing work commitments. A Transition to Retirement (TTR) pension is one of the key tools available to ease this shift. It allows continued workforce participation while drawing on superannuation to support lifestyle needs.
Pension Overview
A TTR pension is an income stream available from superannuation once you reach age 60, even if you remain employed. It provides flexibility by allowing you to reduce working hours while supplementing your earnings.
It also supports strategic tax planning, as you may salary sacrifice into super to reduce personal income tax, while drawing tax-free pension payments to maintain your net income.
Pension Rules
A TTR pension operates similarly to an account-based pension but with additional restrictions.
- You must be at least 60 years of age.
- Annual income payments must be between 4% and 10% of the account balance, calculated on 1 July each year.
- If started mid-year, the 4% minimum is pro-rated. The 10% maximum is not pro-rated.
- Funds must remain in a pension phase, with restrictions on lump-sum withdrawals until you fully retire or meet another condition of release.
These rules ensure superannuation continues to provide for retirement while limiting early access.
Pension Tax
Two forms of taxation apply to TTR pensions: investment earnings tax and pension income tax.
- Investment earnings: Returns within a TTR pension remain taxed at 15%. Realised capital gains receive a one-third discount, reducing the effective rate to 10% where assets are held for more than 12 months.
- Pension payments: All income drawn from a TTR pension is tax-free once you are aged 60 or older.
This structure provides certainty for planning retirement income.
Pension Example
Consider Sandra, aged 61, who reduces her working hours from full-time to part-time. Her salary drops from $80,000 to $40,000, leaving her with a shortfall in income.
Sandra commences a TTR pension with $390,000 of her $400,000 superannuation balance. She nominates to draw $27,000 annually, which, together with her $36,000 net wage, restores her total net income to $63,000.
The TTR pension enables Sandra to reduce hours, maintain her lifestyle, and keep contributing to her superannuation.
Pension Benefits
A TTR pension provides several benefits:
- Flexibility to reduce working hours.
- Tax-effective strategies through salary sacrifice.
- Continued contributions to superannuation.
- Preservation of lifestyle income.
- Progressive adjustment to retirement.
Questions
It refers to the process of gradually shifting reliance from work-based earnings to retirement savings.
It can be effective for those seeking career flexibility and tax efficiency while building retirement savings. Suitability depends on personal circumstances.
Success requires reaching age 60, planning income needs, and determining the appropriate balance between work and pension payments.
Contact your superannuation fund to confirm whether they offer TTR pensions. Professional financial advice is recommended to ensure compliance and suitability.
A Transition to Retirement pension allows Australians aged 60 and over to reduce working hours, preserve income, and employ strategic tax benefits. By carefully managing superannuation withdrawals and contributions, individuals can strengthen their financial position before full retirement.
At Point B Planning, we specialise in helping Australians aged 50 to 70 structure their retirement strategies. Professional guidance ensures compliance with superannuation law and maximises long-term outcomes.
