A transition to retirement allocated pension is a type of superannuation income stream.
Some or all of a member’s superannuation accumulation balance can be used to start a transition to retirement allocated pension.
A transition to retirement pension is suitable for people who have reached their superannuation preservation age and are still working.
This type of income stream was designed to allow people to transition into retirement by reducing working hours, without needing to completely retire to access their super.
While it is used by many to supplement work-related earnings, it tends to be used just as much, if not more, as part of a tax minimisation strategy.
A transition to retirement allocated pension is nearly identical to an ordinary allocated pension, subject to a few restrictions.
The transition to retirement rules are slightly different to the account based pension rules.
The tax on earnings received from investments within a transition to retirement allocated pension is also different to that of a standard allocated pension.
To avoid any confusion, an allocated pension has the same meaning as an account based pension.
A standard allocated pension also has no upper threshold cap on the level of income that can be received each year.
Other names for transition to retirement pensions include:
- Transition to Retirement (TTR) Pension
- Transition to Retirement Income Stream (TRIS)
- Transition to Retirement Account Based Pension
- Non-Commutable Account Based Pension
- Non-Commutable Allocated Pension
These names are all referring to the same type of superannuation income stream.
What is a Transition to Retirement Allocated Pension?
A Transition to Retirement (TTR) Allocated Pension is an account based income stream.
The longevity of a transition to retirement pension is based on the earnings within the account and the level of pension payments received.
The owner of the TTR pension is permitted to nominate to receive an income of between 4% and 10% of the account balance each year.
The 4% and 10% calculation is made on 1 July of each year, or pro-rata in the first year, if commenced part-way through a year.
Once the account balance TTR pension reaches $0, no further pension payments will be received.
In saying that, it is very unlikely for a TTR pension balance to reach $0.
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This is because once the owner of the TTR pension reaches age 65 (or meets the superannuation definition of retirement), the pension automatically converts to an account based pension.
It is then the account based pension that is potentially exhausted and reaches $0.
How To Start A Transition to Retirement Allocated Pension
Most superannuation providers offer the ability to use accumulated superannuation savings to start a TTR Pension.
A TTR Pension can usually be started within a self managed superannuation fund (SMSF) also, provided the SMSFs trust deed allows it.
A TTR Pension is started using all or part of a superannuation accumulation balance.
An income of between 4% and 10% of the balance is nominated each year.
You can use this calculator to calculate your minimum pension payments.
Lump sum commutations are unable to be made from transition to retirement pensions.
The transition to retirement allocated pension can be rolled back to accumulation phase at any stage.
Alternatively, when the owner of the TTR pension reaches age 65, or meets a full superannuation retirement condition of release, the TTR pension converts to an ordinary account based pension.
Meeting the superannuation definition of retirement does not stop a person from working again. Click here for the working after retirement rules in Australia.
Transition to Retirement Pension Changes
The main change relating to transition to retirement pensions from 1 July 2017 was that earnings within the account would no longer be tax free.
From 1 July 2017, all earnings within a TTR pension are taxed in the same way as an accumulation account.
This has reduced the tax-effectiveness of a TTR pension and transition to retirement strategy, as all earnings were previously received tax free.
Transition to retirement strategies are still employed by many individuals – predominately those over age 60.
Transition to Retirement Pension Tax
As mentioned, above, all earnings received from investments within a transition to retirement pension account (or supporting a TTR Pension within a SMSF) are taxed in the same manner as an accumulation account.
That is, all income (interest, dividends, distributions, rent, etc.) are taxed at 15%.
Realised capital gains are taxed at 15%, reduced by 33% to 10% if the investment sold was owned for longer than 12 months.
Pension payments received from a TTR Pension are taxed according to age and tax components.
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The tax components that make up an individual’s superannuation balance can be sought from the superannuation pension provider by quoting your account number.
In the accumulation phase of superannuation, the tax component proportions will constantly change due to contributions and investment market movements.
However, once a transition to retirement pension is started, the tax component proportions are frozen at that point and all pension payments must be made proportionately from each component.
Further, the transition to retirement pension must be started with the tax component proportions in the accumulation account as at the day of commencement.
The tax assessment of pension income from TTR pensions on each component is as follows:
| Tax Component | Under Age 60 | Over Age 60 |
|---|---|---|
| Tax-Free | 0% | 0% |
| Taxable (taxed) | Marginal Tax Rate less 15% offset | 0% |
| Taxable (untaxed) | Marginal Tax Rate (no offset) | Marginal Tax Rate less 10% offset |
The taxation of TTR pension income above illustrates why transition to retirement pensions over 60 are more tax-effective.
Transition to Retirement Pension Age
Any person is able to commence a transition to retirement allocated pension once they attain their superannuation preservation age.
Employment status is irrelevant in determining ones eligibility to start a TTR Pension.
The superannuation preservation ages are as follows:
| Date of Birth | Preservation Age |
|---|---|
| Before 1 July 1960 | 55 |
| 1 July 1960 – 30 June 1961 | 56 |
| 1 July 1961 – 30 June 1962 | 57 |
| 1 July 1962 – 30 June 1963 | 58 |
| 1 July 1963 – 30 June 1964 | 59 |
| After 1 July 1964 | 60 |
Transition to Retirement Pension Balance Transfer Cap
The balance of a transition to retirement allocated pension does not count towards the Transfer Balance Cap.
The Transfer Balance Cap is designed to limit the amount of retirement savings that a person can receive tax free investment earnings on.
Given that TTR pensions are taxed in the same manner as accumulation accounts, they will not count towards the Transfer Balance Cap.
