Transition to Retirement (TTR)

Thinking about easing into retirement? The Transition to Retirement (TTR) rules can help you do that, but it’s important to understand how it works. Here’s a quick rundown.

What is a TTR Pension? 

Once you reach a certain age, you can start a TTR pension, which allows you to tap into your superannuation while still working. This can provide extra income or help you implement tax-friendly strategies without needing to fully retire. The idea is to encourage people to reduce their work hours gradually, helping them work longer and not depleting their super too early.

When Can You Start a TTR Pension? 

You can start a TTR pension as soon as you hit your preservation age (60). You don’t need to change your working hours, whether you’re working full-time or part-time, or even if you’re not working at all.

How Much Can You Withdraw? 

The TTR rules set limits on how much you can withdraw from your super each year. You’ll need to take between 4% and 10% of your super balance annually. If you start a TTR pension mid-year, these amounts are adjusted accordingly, but the 10% max stays the same.

What About Taxes? 

There are two types of taxes to keep in mind:

Earnings Tax: Your TTR pension balance is taxed at 15% on earnings, like interest or dividends. If you sell an investment that’s been held for over a year, the tax on capital gains drops from 15% to 10%.

Pension Payment Tax: If you’re over 60, pension payments are tax-free. If you’re younger, they’re taxed at your regular income rate.

Can You Take a Lump Sum?

No, TTR pensions don’t allow lump sum withdrawals, only pension payments. But you can convert your TTR pension back to an accumulation account or receive regular pension payments based on your preferences.

Can You Make Contributions?

No, you can’t contribute to your TTR pension account. If you want to continue contributing to your super, you’ll need to keep a separate accumulation account.

Example:

If you start a TTR pension with $500,000 on July 1, your minimum income for the year would be $20,000 (4%) and the maximum would be $50,000 (10%). If your balance changes by the following year, these amounts are recalculated accordingly.

If instead, you originally commenced the $500,000 pension on 1 March of the financial year with $500,000, your minimum and maximum income thresholds would be calculated as $6,630 (4% x 121/365) and $50,000 (10%))

In a Nutshell: TTR pensions can be a great way to ease into retirement with more flexibility and tax benefits. Just make sure you understand the rules to get the most out of it!