However, the effectiveness of a TTR strategy depends heavily on how it is structured.
What Is a Transition to Retirement Pension?
A TTR pension allows you to convert part of your super from accumulation phase into an income stream once you reach preservation age (which for most Australians today is age 60).
Once established, you must withdraw at least the minimum annual pension amount (generally 4% if under 65). Importantly, while the TTR is not in retirement phase, there is also a maximum withdrawal limit of 10% of the account balance per financial year.
This 10% cap applies only while the income stream remains a non-retirement phase TTR. If you later meet a full condition of release — such as retiring permanently or turning 65 — the TTR can convert to a retirement phase income stream. At that point, the 10% maximum no longer applies, and the pension behaves like a standard account-based pension (subject only to minimum drawdowns).
How Is a TTR Pension Taxed?
The tax treatment depends on whether the TTR is in retirement phase.
While the TTR is not in retirement phase:
- Earnings on the pension assets are taxed at up to 15% (the same as accumulation phase).
- Pension payments are taxable if you are under age 60 (although a 15% tax offset generally applies).
- From age 60, pension payments from a taxed fund are generally tax-free in your personal hands.
Once a full condition of release is met and the pension moves into retirement phase:
- Earnings on supporting assets become tax-free (subject to your personal Transfer Balance Cap).
- The 10% maximum withdrawal cap is removed.
This distinction is critical and often misunderstood.
Why Would You Use a TTR Strategy?
There are two primary uses for a TTR strategy.
The first is lifestyle flexibility. If you wish to reduce working hours from full-time to part-time, a TTR pension can supplement the reduction in salary.
The second is tax optimisation. Individuals aged 60 or over may draw tax-free pension income while salary sacrificing more of their employment income into super. In certain circumstances, this can reduce overall tax while maintaining similar take-home income.
When Does a TTR Strategy Make Sense?
A TTR strategy tends to be most effective when:
- You are aged 60 or older
- You are still working
- You are on a moderate to high marginal tax rate
- You have a sufficient super balance to support both income and growth
However, drawing pension income without replacing it through contributions can reduce long-term super balances. The strategy should always be modelled carefully.
TTR is not simply a “free tax play.” It is a structured strategy that must align with contribution caps, income needs and long-term retirement planning.
Disclaimer: This information is general in nature and does not consider your personal objectives, financial situation or needs. You should consider seeking professional advice before making any financial decisions. Past performance is not a reliable indicator of future performance.
