Transition to retirement pensions: A step-by-step guide
As you progress towards retirement age, the idea of reducing your working hours can be appealing, especially if you can do it without reducing your income. Fortunately, there is a way to do this. It’s called a Transition to Retirement Income Stream (TTRIS), which allows you to supplement your part-time income with regular payments from your superannuation savings.
Alternatively, if you have an above-average income, a TTRIS could help you to reduce your tax while boosting your super balance.
Navigating the TTRIS rules about eligibility, tax, superannuation and the Age Pension can be tricky. This straightforward guide will get you started, but a financial adviser can help steer you through the decision-making and application process.
10 steps towards creating your TTRIS
- Check your eligibility
In order to receive a TTRIS, you must have reached ‘preservation age’, which is 60 years old for anyone born after 30th June 1964. - Consider your strategy
Is your main aim to reduce your working hours while maintaining your income? Or do you want to increase your income so that you can make extra super contributions and pay tax of only 15% on up to $30,000 per year of the income used to fund them? This latter strategy works best if your taxable income is between $45,000 and $250,000 per year. - Grasp the minimum and maximum payment rules
When you start a TTRIS, a part of your super balance will be transferred from your accumulation account into a pension account. You must then withdraw regular payments, adding up to an annual amount usually falling between a minimum of 4% (depending on your age) and a maximum of 10% of the pension account balance. - Understand the likely effect on your tax
Once you turn 60 and are eligible for a TTRIS, the payments you receive will usually be tax-free, although your pension account’s earnings will be taxed at 15%. The taxation treatment will change once you turn 65 or fully retire. - Be aware of other potential consequences
- Employer super contributions
You will need to keep your superannuation accumulation account open – by leaving a balance in there – so that you can receive super guarantee contributions from your employer while you are still working. Employer contributions can’t be paid into pension accounts. - Superannuation life insurance
If your superannuation account includes life insurance, make sure you leave enough in your accumulation account to pay the premiums. - Government benefits
A TTRIS may reduce any part of the Age Pension or other government benefit received by you or your partner.
- Consult your super fund for specifics
Each super fund approaches TTRIS differently. Contact them for details such as application forms, ID requirements, minimum balance and fees. For SMSFs, check trustee and record-keeping obligations.
- Choose your payment amount and frequency
Select an annual amount between 4% and 10% of your pension account balance, then decide how often you want to receive payments (e.g. monthly).
- Complete your application
Fill in the fund’s TTRIS application form, including providing ID and proof of eligibility. Once money is transferred from your accumulation account to your pension account, payments can begin.
- Keep detailed records
Save copies of your application form, pension account statements and annual tax statements, because you may need them to support your tax return. If you have an SMSF, there are extra record-keeping requirements.
- Review your needs regularly
A TTRIS should not be ‘set and forget’, because your financial needs may change as you age, and when you finally retire, you’ll need to convert your TTRIS into a standard account-based pension.
Financial advisers are TTRIS experts
A TTRIS may not be the best option for everyone, because there are trade-offs regarding taxation, reduced capital growth in your super fund, and possibly lower Age Pension entitlements. A financial adviser can explain all the pros and cons and create projected retirement income scenarios for your circumstances.
