What are the transition to retirement pension minimum and maximum withdrawal amounts and how on Earth are they applied?
Fear no more, SuperGuy is here to save the day. I’ll explain exactly how to calculate the minimum and maximum withdrawal amounts for both full and partial years.
Transition to Retirement Pension Minimum and Maximum Withdrawal
When you start a transition to retirement pension, you are required to receive an income of between a minimum and maximum amount in each financial year that the transition to retirement pension is in existence, including partial years.
The minimum and maximum withdrawal thresholds are calculated as 4% and 10% of your transition to retirement (TTR) pension balance each financial year. That is, you must receive an income of between these amounts.
The 4% and 10% is calculated on your TTR pension balance on 1 July of each year and applies for the duration of that financial year. Then, the minimum and maximum withdrawal amounts are recalculated again on 1 July of the following financial year and apply to that year, and so on.
If you start a TTR pension part-way through a financial year, the 4% and 10% calculation is the same, but the 4% amount is pro-rata based on the number of days remaining in the year as a percentage of the total days in the year. The maximum 10% calculation is not pro-rata – you can withdraw this amount even if the TTR pension was in existence for a partial year.
Related article: TTR Strategies
How Much Can I Withdraw From a Transition to Retirement Pension
In order to satisfy the transition to retirement rules, you are permitted to withdraw the minimum pension amount, the maximum pension amount, or any pension figure in-between the minimum and maximum amount.
An example of how the calculation of the transition to retirement minimum and maximum withdrawal amounts work is as follows:
If you were to start a TTR pension on 1 July with $500,000, the minimum and maximum income amounts would be calculated as:
Minimum income = $500,000 x 4% = $20,000
Maximum income = $500,000 x 10% = $50,000
This means you would be able to withdraw between $20,000 and $50,000, inclusive, in that financial year. The income could be received weekly, fortnightly, monthly, half-yearly, or one-per year; provided that no less than $20,000 was received in total throughout the year and no more than $50,000.
If you were, instead, to start a TTR pension part-way through the year on, say 18 May, the minimum amount would be pro-rata, but the maximum amount would not – calculated as:
Minimum income = ($500,000 x 4%) x (43/365) = $2,356 (rounded to nearest $10, so $2,360)
Maximum income = $500,000 x 10% = $50,000
This video shows you exactly how a TTR Pension works:
How Does Age Affect TTR Pension Minimum and Maximum Withdrawals?
As you get older, the minimum pension withdrawal amount associated with superannuation retirement income streams increases. However, the pension factor of a transition to retirement pension is not altered by your age. The reason for this is because, once you reach age 65, you have met a full superannuation condition of release, which means your transition to retirement effectively converts to an ordinary account based pension, which has no maximum threshold. Age 65 does result in the minimum factor increasing from 4% to 5%, but your pension is no longer a transition to retirement pension, due to your age.
Therefore, between your preservation age and age 65, your minimum and maximum TTR pension income percentage factors will always be 4% and 10%.
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Frequently Asked Questions
Listed below are some frequently asked questions about the minimum and maximum withdrawals for transition to retirement pensions.
How Do I Calculate My Minimum Pension Withdrawal?
Your minimum pension withdrawal is calculated by multiplying the value of your pension balance on 1 July of the financial year by your pension payment factor, as follows:
Minimum Pension Withdrawal = Account Balance on 1 July x Minimum Pension Factor
This figure should then be rounded to the nearest $10.
Your pension payment factor is detailed in the table below:
|Age||Standard Minimum Percentage Factor||Reduced Minimum Percentage Factor (2020 - 2023 FY inclusive)|
|Below Age 65||4%||2%|
|65 - 74||5%||2.50%|
|75 - 79||6%||3%|
|80 - 84||7%||3.50%|
|85 - 89||9%||4.50%|
|90 - 94||11%||5.50%|
|Age 95 and above||14%||7%|
If you commence a pension part way through a financial year, you calculate your minimum pension withdrawal (as per the formula, above) then divide it by the total number of days in the financial year and multiply it by the number of days remaining in the financial year.
What is the Minimum I Can Withdraw from a Transition to Retirement Pension?
The minimum you can withdraw from a transition to retirement pension is 4% of your account balance, recalculated on the 1st of July each financial year. If you started the pension partway through a financial year, then you multiple the starting balance by 4% and divide it by the total number of days in that financial year, then multiply it by the number of days remaining in the year. The result will be the minimum amount you can withdraw.
What are the Transition to Retirement Pension limits?
The transition to retirement pension limits are 4% and 10% of your account balance, calculated initially at the commencement of the pension and then recalculated again on 1 July of each subsequent financial year.
What is the transfer balance cap for transition to retirement pension?
There is no transfer balance cap for a transition to retirement pension. Unlike an ordinary account-based pension, a transition to retirement pension does not count towards the transfer balance cap, because
Can you make a lump sum withdrawal from a TTR?
You are not permitted to make a lump sum withdrawal from a TTR pension. A TTR pension is designed to provide you with an income of between 4% and 10% of your TTR pension balance each financial year. However, if you were to nominate to receive your pension for the year as a one-time payment, then you might say it is an annual lump sum withdrawal (while technically still being classified as a pension payment).
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