I want to start a Transition to Retirement (TTR) Pension – do I need to reduce my working hours?

A common misconception with TTR Pensions is the fact that consumers think to commence one you need to reduce your working hours. This is not the case and even if you are still working aged over 60 and prior to age 65 (and haven’t met any other condition of release to access a normal account-based pension) – you can commence one, regardless of your working hours.

What is a TTR Pension?

A TTR Pension is simply moving your superannuation held in accumulation into a type of income stream where you can start accessing it. The criteria is essentially being aged 60 (preservation age). It is irrespective of if you are trying to “transition to retirement” or not.

Your money also can still be invested, with the same or a different approach as to what your superannuation account was invested like. Unfortunately, there are no “extra” tax concessions with a TTR Pension. Earnings within the fund are still taxed at up to 15% like superannuation. However, when you meet a further condition of release of superannuation (such as reaching age 65). Then the TTR Pension can be converted to a normal account-based pension (ABP) where earnings are not taxed at all! Note – prior to 1st of July 2017, TTR Pension’s did used to carry the same tax concessions (0% tax on earnings) as an ABP.

The requirements/limitations of a TTR Pension are you need to draw a minimum amount of 4% out annually and a maximum of 10%.

So if you had $100,000 in a TTR from the 1st of July of a financial year. You will be limited to taking at least $4,000 out and a maximum of $10,000 in that financial year.

Uses of a TTR Pension

A TTR Pension can be used for a number of things. Examples that I come across and advise upon commonly include.

• Helping to reduce/pay off loans in the lead up to retirement such as outstanding mortgages or car loans.
• Assisting in building wealth in the lead up to retirement in a tax effective manner by freeing up cash flow to allow an individual to salary sacrifice to superannuation.
• Some people do want to start winding down work and may drop 2 days of work for example and supplement that lost income with a TTR Pension.
• Life happens and things like cars and health cost us at times – this is where income from a TTR Pension can assist.

Summary

So as mentioned, you don’t need to reduce your working hours to commence a TTR Pension -although you can anyway if that is something you wish to do so that you can ease into retirement. There are many uses as noted above, it is important to seek specialised advice in this area specific to your situation. Please feel free to contact me if you have any questions or wish to seek advice specific to your situation and how a TTR Pension can be used to maximise your overall wealth or meet some immediate goals.