Transition to Retirement

A transition to retirement (TTR) pension allows you a way of gradually drawing on your superannuation assets while you are still working and moving towards your retirement (upon reaching preservation age)

You can commence your TTR by transferring some of your accumulated super assets into a super account-based pension. You need to retain at least a small balance in your accumulation fund to ensure that it remains open and can continue to receive your SGC and any other voluntary contributions you wish to make as these contributions cannot be paid into your pension account.

Under TTR rules, your income stream needs to be set up as non-commutable, one that cannot be converted into a lump sum but regular payments instead. You must draw down between 4% – 10% of the account balance each financial year.

Rate of tax on payments will be determined by whether you are under preservation age (or of preservation age). Any earnings on investments are taxed at a maximum of 15%.

• Under preservation age or preservation age and under 60: Taxed at your marginal tax rate (MTR) but you then receive a tax offset of 15%
• Age 60 and over – Tax-free
• Taxable (untaxed element): Your marginal tax rate (MTR)

Pre-Retirement Work/Life Balance

Depending on your personal circumstances as you approach closer to retirement a TTR allows you to:

• Cut back on your working hours (if you wish) without reducing your income (as the TTR can be used to supplement reduced income)
• Cut back on your working hours (if you wish) without reducing your income (as the TTR can be used to supplement reduced income) but begin to salary sacrifice (reduce your taxable income) to continue to build your retirement assets in a tax-effective environment
• Continue to work pre TTR hours, drawdown minimum pension, whilst salary sacrifice difference (reducing your taxable income and boosting your retirement assets in a tax-effective environment

Defined Benefit fund members cannot access a pre-retirement TTR pension

Example: Jacob has reached his preservation age (but is under 60) decides to begin a pre-retirement pension, continues to work his normal hours, draws down the minimum 4% pension requirement and salary sacrifices equal to drawdown

• Increase super contributions $21,600 p.a. ($11,900 net after 15% contributions tax)
• Reducing tax income and therefore tax payable, saving $4,655 p.a.
• An increase in his tax home pay

Prior to commencing a pre-retirement pension, you should consider your super fund requirements, your income planning requirements, work/life objectives (cut back work hours/save on tax) and personal insurance requirements (e.g. your life insurance policy is not reduced or ceases altogether.

Speak to a professional or contact our office if you would like some assistance in working out if the pre-retirement pension is for you