How does a transition to retirement (TTR) pension work?

Not sure how to transition into retirement, or whether you need to stop work all at once?

Many people assume retirement is a single moment. In reality, it’s often a gradual shift – financially and personally.

Even if you’re nearing retirement age, you might not want to leave the workforce just yet. You may want to boost your savings – or you might simply enjoy the purpose and connection work brings.

A transition to retirement (TTR) pension can help make that shift feel more manageable, giving you more control over how you balance work, income and your super as you move closer to retirement. 

Below we answer some commonly asked questions, from when you can start a TTR pension to how it might boost flexibility, how much you can withdraw and potential tax benefits.

At what age can I start a TTR pension?

You can start a TTR pension once you’ve reached your preservation age. Since 1 July 2024, preservation age is effectively 60 for all Australians.

How might a TTR pension create more financial flexibility?

A TTR pension can give you more control over how and when you earn income, rather than having to make a sudden shift from working to fully retired.

If you’re employed: A TTR pension can give you flexibility in how your income is structured. You might choose to reduce your hours and use your super to top up your income, or keep working as normal while making additional contributions (some which may be tax deductible) to build your retirement savings faster.

If you’re self-employed: A TTR pension works in a similar way, although salary sacrifice arrangements may not apply. Instead, you may be able to make personal contributions into super, which could be tax deductible. If you happen to be an employee of your own company, you could, however, arrange to swap part of your pay for salary sacrifice contributions.

How much can I withdraw from a TTR pension?

There are rules around how super can be accessed before full retirement. A TTR pension doesn’t allow you to withdraw your super as a lump sum. You can generally only do that once you’ve reached your preservation age and met certain conditions of release, such as retirement. What you can access is between 4% and 10% of your super each financial year. That 4% to 10% limit is designed to help you ease into retirement income — without running down your super too quickly.

It’s also worth noting that the income you receive is based on the amount you have in your super, so you won’t be guaranteed an income for life. Also, by drawing down on your super, you may be reducing the amount you have left to fund your retirement.
 

How are TTR pensions taxed?

Tax can play a big role in how effective a TTR pension is — especially once you turn 60.

• If you’re aged 60 or over and your super is held in a taxed fund, income payments from a TTR pension are generally tax free.

• Investment earnings are taxed in the same way as a super accumulation account, with generally a maximum tax rate of 15%, with a higher rate for balances above $3 million.

What other things might I need to consider?

• Talking to your super fund, as not all funds provide TTR pensions.

• Figuring out if you want to reduce your work hours.

• Thinking about your income sources and calculating your income needs – you can use our AMP Retirement Simulator to see how much money you might have in retirement.

• Finding out what your Government entitlements are, as commencing a TTR pension may affect your eligibility for Government benefits (including the Age Pension) or could reduce your entitlements.

• Your investment options, as returns are tied to movements in investment markets, so may go up or down.

What happens when I do eventually want to retire?

Once you reach age 65 or advise your super fund that you’ve retired permanently and cease your employment, you can move your TTR pension into retirement phase, where your super turns into retirement income. This may be treated as a flexible retirement income stream (also known as an allocated or account‑based pension) by your fund, which may have more advantages. 

A flexible retirement income stream will give you a regular income in retirement – there are annual minimum amounts which must be paid to you as income. You can also make a lump sum withdrawal which is not limited.  

You can also consider pairing a flexible retirement income stream with a lifetime retirement income stream (also known as a lifetime pension), which is designed to pay you an income for the rest of your life. 

For more information on account-based pensions and other retirement pensions available, see our article – Types of retirement pensions explained.

If you’re considering withdrawing your super as a lump sum down the track, there will also be issues and tax implications to think about.
 

Where might I go for some help?

A TTR strategy isn’t one‑size‑fits‑all. Getting expert financial advice can help you understand how it might support the lifestyle you want for your particular circumstances — both now and in retirement.

If you’re unsure whether it’s right for you, a helpful next step is to look at how a TTR pension would fit alongside your broader retirement income, including when you plan to retire and how you’d like to structure your income over time.

Getting expert financial advice can help you understand how it might support the lifestyle you want for your particular circumstances — both now and in retirement. 

AMP Super members can access Digital Financial Advice for no extra fees. Members over 60 can try out our Retirement Planner by entering details about your assets, loans, and retirement goals. It shows how your super could turn into a retirement income over time, with a recommended strategy you can adjust to suit you. You’ll also get a simple, easy‑to‑follow action plan so you know what to do next. If you prefer talking things through, you can also speak with AMP’s experienced financial advisers, who can help explain your options and answer your questions.