Key takeaways
- A TTR pension lets you draw an income from super after reaching preservation age, while still working.
- You must draw between 4% and 10% of the balance each year.
- Unlike a retirement pension, earnings on TTR assets are generally taxed at 15%, not exempt.
- TTR can support cutting back work hours, or be paired with salary sacrifice as a strategy.
A transition-to-retirement (TTR) income stream lets you access some of your super before fully retiring. It exists for people who have reached preservation age (now 60) but are still working, whether full time or winding down.
How a TTR pension works
You convert part of your super into a TTR pension, which pays you a regular income while the rest stays invested. There are limits: you must draw at least 4% of the balance a year and no more than 10%. Because you have not fully retired, the rules are tighter than a standard retirement pension.
The key tax difference
This is where TTR differs most from a retirement pension. In a TTR pension that is not yet in retirement phase, earnings on the supporting assets are generally taxed at 15%, the same as accumulation, rather than being exempt. The income payments to you from age 60 are generally tax-free, but the fund does not get the earnings exemption until you meet a full condition of release. See how that compares in SMSF pensions.
Where TTR can help
- Reducing work hours. A TTR income can top up your pay if you cut back to part time, smoothing the move toward retirement.
- A salary sacrifice strategy. Some people draw a TTR income while salary sacrificing more into super, shifting income into the concessionally taxed environment. The benefit depends on your marginal tax rate and the current rules, so it needs to be modelled, not assumed.
Is it worth it?
TTR strategies were more powerful before the earnings exemption was removed from TTR pensions. They can still help, particularly around reducing work hours, but the numbers are more marginal than they once were. This is general information, and whether a TTR pension suits you depends on your income, balance and goals, so model it with an adviser before starting one.
Frequently asked questions
- What is the difference between a TTR pension and a retirement pension?
- A TTR pension is for people who have reached preservation age but are still working. It caps drawings at 10% a year, and earnings on the assets are generally taxed at 15%. A retirement pension, started after a full condition of release, has tax-exempt earnings.
- How much can I draw from a TTR pension?
- Between 4% and 10% of the pension balance each year. The minimum is the same as other account-based pensions, but the 10% maximum is specific to TTR income streams.
- Is a TTR strategy still worthwhile?
- It can be, but it is more marginal since the earnings exemption was removed from TTR pensions. It is most useful for easing into part-time work. The salary sacrifice angle needs to be modelled for your situation rather than assumed.
