A TTR Pension over age 60 provides a number of benefits.
A Transition to Retirement (TTR) Pension is an income stream that you can start with your superannuation savings.
You can use your super to start a TTR Pension once you have reached your superannaution preservation age.
As the name suggests, a TTR Pension is designed to allow you to transition into retirement.
The income from a TTR Pension can be used to supplement income if you decide to reduce to part-time or casual work in the years leading up to full retirement.
Another benefit of a TTR Pension is that it can be used to implement a TTR strategy, which can greatly reduce your personal income tax.
TTR Pension Over Age 60
While you are able to start a TTR Pension once you have met your preservation age, most people wait until age 60.
The reason for this is because all income payments received from a TTR Pension is tax free when over age 60, which is not always the case if you are under age 60.
Starting a TTR Pension over age 60 is generally more tax-effective compared to being under age 60.
If you are under age 60, the taxable component of your pension payments is assessed at your marginal tax rate, minus a 15% tax offset.
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Transition to Retirement Maximum Withdrawal
Unlike an ordinary account based pension, a TTR Pension limits the amount of income you can receive each year.
With a TTR Pension, you can nominate to receive income payments of between 4% and 10% of the account balance each financial year.
For example, if you commence a TTR Pension with $400,000, you can nominate to receive an income of anywhere between $16,000 (4%) and $40,000 (10%) in the first year.
In fact, you must draw an income between these limits to satisfy the conditions of a TTR Pension.
The minimum and maximum amounts are recalculated on 1 July of each year based on the 4% and 10% thresholds.
If you start a TTR Pension mid-way through a financial year, the minimum amount is pro-rata, calculated as a fraction of the number of days remaining in the year.
The 10% upper limit is not calculated as a pro-rata amount, even if the TTR Pension began part-way through a financial year.
Once the minimum and maximum amounts have been calculated, they are rounded up or down to the nearest $10.
Transition to Retirement Disadvantages
The main disadvantages of a TTR Pension is that you are drawing on your retirement savings prior to full retirement.
By accessing your super before full retirement, it may mean that your savings do not last as long throughout retirement.
Also, if you are still working or contirbuting to super, it will mean that you will have a TTR Pension account and an accumulation account.
Super contributions are unable to be made to a pension account, whcih means you will need an accumulation account to accept contributions.
This can increase the complexity and costs associated with your super.
Furthermore, starting TTR Pension may require investments within a super accumulation account to be sold, which could result in capital gains tax (CGT).
These are a few disadvantages associated with transition to reitrement pensions.
Transition to Retirement Changes
Prior to 1 July 2017, all earnings (including realised capital gains) derived from investments within a TTR Pension were received tax free.
However, from 1 July 2017, all earnings within a TTR Pension are taxed in the same manner as an accumulation account, at up to 15%.
Tax on earnings within a TTR Pension should not be confused with TTR Pension income payments.
All income payments are tax free from a TTR Pension over age 60, whereas the taxable component of TTR Pension income payments is assessable for personal income tax purposes while under 60.
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TTR Pension Over Age 60 Example
Let’s assume you are over age 60 and have $400,000 in a superannaution accumulation account.
You can use this to start a TTR Pension.
In the first year, you could receive pension payments of between $16,000 and $40,000.
This income will generally not be assessed for tax purposes.
You can choose to roll (commute) this TTR Pension back to your accumulation account at any stage.
Otherwise, once you reach age 65, this TTR Pension can revert to an ordinary account based pension.
This is due to age 65 being a full superannuation condition of release, providing you with unrestricted access to your super.
The advantage of an account based pension over a TTR Pension is that there is no upper income threshold and all earnings within the account are received tax free.
Alternatively, you can convert your TTR Pension to an account based pension prior to age 65 if you meet the superannuation definition of retirement.