What is a Transition to Retirement (TTR) Pension? 📋
A Transition to Retirement (TTR) pension is a special type of account-based pension that allows you to access some of your super while you are still working, provided you have reached your preservation age.
It was designed to help people either:
- Reduce working hours without sacrificing their take-home pay.
- Boost their super savings in the final years before they fully retire.
This is a complex strategy, and this guide provides general information only. It is not personal financial advice, and you should consider seeking professional advice before implementing a TTR.
How Does It Work for Winding Down Work?
Let's look at a common scenario. Imagine Sarah is 60, has reached her preservation age, and wants to work three days a week instead of five.
- Reduced Salary: Her salary from her employer is reduced because she is working less.
- Start a TTR Pension: Sarah starts a TTR pension using some of her existing super. She begins drawing a regular income from this pension.
- Top Up Income: The income from her TTR pension tops up her reduced salary, allowing her to maintain her previous take-home pay while enjoying more free time.
- Employer Contributions: Meanwhile, her employer continues to pay Superannuation Guarantee contributions into her separate accumulation account.
How Does It Work for Boosting Super?
A TTR can also be used to save on tax and boost super savings before retirement. This is often done through "salary sacrificing."
- Salary Sacrifice: A person arranges with their employer to "sacrifice" some of their pre-tax salary and have it paid directly into their super account. This reduces their taxable income.
- Start a TTR Pension: They then start a TTR pension to draw an income to replace the money they sacrificed.
- The Tax Advantage: Salary sacrificed contributions are typically taxed at only 15% in the super fund. For many people, this is lower than their marginal income tax rate. This tax saving allows them to build their super balance faster in the lead-up to retirement.
Important Rules to Know
- Withdrawal Limits: With a TTR, you cannot take a lump sum. You can only draw a regular income stream between 4% and 10% of your TTR account balance each financial year.
- Tax: The investment earnings inside a TTR pension account are taxed at up to 15%, just like a regular super account. They are not tax-free like a standard retirement pension account.