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

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 give you more control over how you balance work, income and super as you move closer to retirement.Below we answer some commonly asked questions, such as when you can start a TTR pension, how it might create financial flexibility, how much you can withdraw and what the potential tax benefits may be.
 

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 change how your income is structured as you move closer to retirement.

If you’re employed: By setting up a TTR pension, you could choose to work less, or continue working the same hours while salary sacrificing or making personal contributions into super (some which may be tax deductible). In both cases, you could use the income from your TTR pension to supplement any reduction in your take-home pay.

If you’re eligible, you’ll also be able to continue receiving super guarantee contributions, which your employer is required to make into your super fund.

If you’re self-employed: A TTR pension works in the exact same way, except self-employed people may not be able to set up a salary sacrifice arrangement. This is where you get your employer to make additional contributions into your super fund out of your before-tax income, if you choose to.

What you can do as a self-employed person is make personal contributions into super, which may 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 subject to the same maximum 15% tax rate that applies to super accumulation funds.
   

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

• Finding out what your government entitlements are, as there may be implications by commencing a TTR pension

• 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, your TTR pension moves into retirement phase and may be treated as an account‑based pension by your fund, which may have more advantages.

An account-based pension will give you a regular income in retirement and you won’t be limited to what you can withdraw, but there will be annual minimum withdrawal amounts.

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.

AMP Super members can access Digital Financial Advice for no extra fees, which includes online advice 24/7 as well as access to financial advisers who can talk through your personal goals and circumstances.