What is Transition to retirement and how does it work?

Work less, earn the same. Sounds pretty good, right? A transition to retirement (TTR) pension allows you to access your super before you officially decide to hang up your boots. Another option is to keep working full time and use a TTR pension to give your super a boost before you retire.

Why?

A TTR pension enables you to access your super while you’re still working. It might help you top up your income, or it could help you boost your super tax-effectively.

When?

You must have reached your ‘preservation age’ to start a TTR pension. Depending on your date of birth your preservation age will be between 55 and 60.

How?

TTR isn’t for everyone. A financial adviser can help you cut through the complexity and decide if TTR is right for you and how to get started.

Who might benefit from a TTR pension?

As the name suggests, a transition to retirement (TTR) pension could suit you if you’re getting close to retirement age but aren’t quite ready to stop working. It enables you to access some of the money in your super even though you’re earning a salary.

Having a TTR pension means you can reduce your hours of work and use money from your TTR pension to supplement your income.
You can also use a TTR pension to boost your super savings and pay less tax as you get closer to retirement.

To learn more, check out our complete guide to TTRs.

But don’t forget that TTR pensions can be complex with various rules and tax considerations, which is why you should talk to a financial adviser to fully understand your options.

How can a TTR pension help me if I want to reduce my working hours?

If you’ve reached your preservation age (see below for an explainer) but are yet to fully retire, you can transfer some or all of your existing super savings into a separate TTR pension account. Then, you can use your pension payments to top up your income when you start working fewer hours and earn less.

As an example, you could choose to work three days a week, and draw an equivalent of two days’ pay a week from your TTR pension account. Of course, this means you’ll have less money once you retire – so it’s important to make sure you’ll have enough for the lifestyle you want after you finish work.

Case study:

Colin (age 60) is employed full time earning $100,000 and has a super balance of $600,000. He wants to reduce his working hours to 3 days per week for the next five years, and then retire fully at age 65. Colin uses all of his super to commence a TTR pension.

While Colin loses $40,000 p.a. in salary, he only needs to draw pension payments of approximately $26,000 (tax free as he is aged 60 or over) to replace this lost salary.

It is important to note that due to the pension payments and his reduced working hours leading to less employer super contributions, Colin’s super balance at retirement is $731,835, compared with $917,350 had he continued working full-time until age 65 – a loss of $185,515.

Disclaimers and assumptions:

This example is for illustrative purpose only and is factual information calculated using the following assumptions. It doesn’t constitute general or personal advice and doesn’t take into account anyone’s objectives, financial situation or needs.
TTR pension commences on 1 July 2023. 2023-24 income tax rates and thresholds apply in all years. TTR pension earnings 8% p.a. (with half of earnings taxed at 15%). No indexation is applied to Colin’s earnings in future years. All results in future dollars.

How can I use a TTR pension if I want to boost my super?

If you’re getting closer to retirement and want to boost your super balance, you can use a TTR pension to put more into your super while you pay less tax.

How does it work? You continue to work your usual amount, but salary sacrifice more of your before-tax pay into your super account. These contributions are taxed at 15%. You’ll also continue to get super contributions from your employer.

You then use the TTR pension payments to top up your pay so you are left with approximately the same amount in hand. You pay less tax on the pension payments compared to your salary or wages. This means, you’ll need less from your pension than the amount you’re salary sacrificing into your super. So your super gets a boost while you keep the same amount of pay.

What is my preservation age?

To be able to start a TTR pension, you need to have reached preservation age. Your preservation age will be between 55 and 60 depending on your date of birth. You can work out your preservation age using this table:

Date of birth

Preservation age

Date of birth

Before July 1960

Preservation age

Before July 1960

Date of birth

1 July 1960 – 30 June 1961

Preservation age

1 July 1960 – 30 June 1961

Date of birth

1 July 1961 – 30 June 1962

Preservation age

1 July 1961 – 30 June 1962

Date of birth

1 July 1962 – 30 June 1963

Preservation age

1 July 1962 – 30 June 1963

Date of birth

1 July 1963 – 30 June 1964

Preservation age

1 July 1963 – 30 June 1964

Date of birth

59 From 1 July 1964

Preservation age

59 From 1 July 1964

How do I get started?

A TTR pension can make it easier for you to move from your working life into retirement, or boost your retirement income for when you finally finish work. But there are some complicated rules and a few limits, so it may not be right for you.

That’s why it’s really important to consider talking to your financial adviser if you have one, or use our find an adviser service to locate one near you. A financial adviser can help you decide if a TTR pension suits your life stage and your financial goals. They can also discuss other retirement income options with you.