A TTR pension could allow you to withdraw up to 10% of your super savings each financial year whether you’re still working full-time, part-time or casually.
Even if you’re nearing retirement age, you mightn’t want to leave the workforce just yet. You may want to save more money, or you might just enjoy the mental stimulation and interactions that come with having a job.
Whatever the reason, setting up a transition to retirement (TTR) pension could provide you with greater financial flexibility by enabling you to access a portion of your super each year while continuing to work full-time, part-time or casually.
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?
A TTR pension enables you to access some of the super you’ve saved to date once you’ve reached your preservation age, which will depend on what year you were born.
See the table below to work out what your preservation age is.
Your preservation age
Date of birth
Before 1 July 1960
1 July 1960 – 30 June 1961
1 July 1961 – 30 June 1962
1 July 1962 – 30 June 1963
1 July 1963 – 30 June 1964
1 July 1964 and onwards
How might a TTR pension create more financial flexibility?
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?
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.
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?
Up to age 60, the taxable amount of your income from a TTR pension is taxed at your personal income tax rate, less a 15% tax offset.
Once you turn 60, any income from your TTR pension is 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 will automatically convert to an account-based pension, 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. To find out more, see our article – Should I take my super as a lump sum?
Where might I go for some help?
Before deciding if a TTR strategy is right for you, do some research and speak to your financial adviser. Seeking advice could help you understand the possible benefits and implications for your particular circumstances.
Contact us if you would like to discuss this further.
Source: AMP October 2021
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling 07 3863 1154, before deciding what’s right for you.
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