Retirement Planning, Superannuation

Transition to Retirement (TTR) Pensions explained

A Transition to Retirement (TTR) pension—formally known as a Transition to Retirement Income Stream (TRIS)—lets you access a portion of your superannuation while still working.

There are two camps of people that might want to consider a TTR strategy:

  1. Those who are approaching retirement and want to work less but need a top-up from super to maintain their cash flow. This is really what the TTR strategy was built for; or

  2. Those who want to maximise their cash flow for wealth-building strategies like additional debt repayments or voluntary super contributions.

If you fall in one of these camps, let’s consider how it works.

Eligibility criteria

To establish a TTR pension, you must have met preservation age. For those born after 1 July 1964, this is age 60. If you were born before then, you’ve likely already qualified.

The TTR pension is aimed at people who are still in the workforce. After all, if you’ve met your preservation age and are no longer working, you’d generally have access to a full account-based pension, which offers even greater flexibility.

How it works

Assuming you’re eligible, starting a TTR pension involves lodging an application with your super fund. This will create a new pension account. You then transfer part of your super from accumulation phase into the TTR pension.

Importantly, you should leave enough money in your accumulation account to cover ongoing contributions and expenses like insurance premiums. Pension accounts can’t accept contributions, so it’s critical your accumulation account remains open.

Once the funds are transferred to your TTR pension, you can begin drawing an income. This can be set as a regular payment (often monthly) or taken as an annual lump sum.

Drawing a pension

Once set up, you can withdraw up to 10% of your TTR pension balance per financial year. There’s also a minimum you must withdraw, based on your age. The older you are, the higher the percentage you must take out—starting at 4% for those under 65.

AgeStandard Min %
Under 654%
65 – 745%
75 – 796%
80 – 847%
85 – 899%
90 – 9411%
95 or more14%

If you start mid-financial year, the minimum is pro-rated. The 10% maximum remains in place regardless of when you start.

Investing your TTR pension

You can invest your TTR pension similarly to your accumulation account, subject to the fund’s investment menu. It’s important to choose a provider with competitive fees and investment options aligned with your risk profile and goals.

What about tax?

If you’re age 60 or older, any income you draw from the TTR pension is tax-free. It’s classified as non-assessable, non-exempt income and doesn’t need to be reported in your tax return.

However, within the pension account itself, earnings are taxed the same as accumulation—up to 15%.

Prior to July 2017, TTR pensions received the same tax treatment as account-based pensions, but unfortunately this is no longer the case. Because of this, you would generally only start a TTR pension if you need to supplement your income or fund a strategy like concessional contributions—not purely for tax arbitrage.

What happens when you retire or reach age 65

If you retire after age 60, or simply reach age 65, you’ve met a full condition of release. This allows you to move into a standard account-based pension. Unlike a TTR, there’s no cap on how much you can withdraw, and the fund itself becomes a tax-free entity.

At this point, you can usually apply to convert your TTR pension into an account-based pension through your provider.

TTR Pension Benefits

A  TTR pension can provide you with greater flexibility, efficiency, and control as you move toward retirement.

  • Flexibility to ease into retirement: Reduce your working hours while maintaining your income, supporting a smoother transition into retirement life.
  • Opportunity to increase retirement savings: Salary sacrifice more of your income into super while drawing a TTR pension to meet living costs, potentially enhancing your long-term retirement savings.

Key Considerations

Despite its advantages, a TTR pension involves several considerations that may affect your long-term financial outcomes.

  • Reduced superannuation balance: Drawing income while still working can reduce your super balance, impacting your retirement funding.
  • Taxation on investment earnings: Until your TTR pension enters the retirement phase, investment earnings are taxed at 15%, potentially limiting growth.
  • Investment performance and fees: Market volatility may reduce your balance, especially if you draw income during downturns. Fees can also erode your savings over time.
  • Complexity of rules: TTR strategies are governed by specific rules. Without proper advice, there’s a risk of making decisions that are not optimal or compliant.

The Guided Investor approach

At Guided Investor, we apply the TTR strategy as part of Phase 3 of the wealth creation process—when clients are preparing to transition from full-time work to retirement.

Where you have unused concessional cap space but not enough savings to use it, a TTR can be a great funding mechanism. You essentially draw income from your pension and re-contribute it as a personal deductible contribution—boosting your super and receiving a tax deduction.

That said, it’s important not to use a TTR as a funding mechanism for reckless spending. If you’re drawing from your retirement savings without a strategy, it can leave you worse off in the long run.

Disclaimer

The information in this website is for general information only.

It should not be taken as constituting professional advice from the website owner – Guided Investor as Authorised Representative of Symmetry Group (AFSL 426385)

You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances.

Guided Investor is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this document.

Brad Buters Financial Planner Perth

Brad Buters

Managing Director | Financial Adviser

Helping Australians achieve financial independence.

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