What is a Transition to Retirement (TTR) Pension?
A Transition to Retirement Pension is essentially an early release type Pension for people that have reached preservation age (currently age 55) but not yet reached a full condition of release (i.e retirement) allowing people early access to their Super money.
Uses for TTR Pension
There are a number of ways that a TTR Pension can be used which can allow people the ability to reduce their working hours approaching retirement i.e transitioning into retirement or to boost their Super balances for retirement through a tax savings strategy.
1) Reduce working hours
A TTR Pension can be used to help someone reduce their working hours but not their income. Drawing income from a TTR Pension is possible once preservation age has been reached (currently age 55) subject to certain minimum and maximum amounts.
These amounts are defined by a percentage of the funds balance and currently 10% is the maximum annual amount allowable. The minimum amount is age related but currently for someone age 55 3% is the minimum annual amount.
So as an example it may be possible for someone to reduce their working week to 4 days or 3.5 days and still end up with the same income as they would have earned on a full 5 day week by drawing from a TTR Pension.
2) Boosting Super balance
Another way that early access to your Super Fund via a TTR Pension can be beneficial is by combining it with a salary sacrifice strategy.
This can help boost Super Funds via tax savings for retirement, the way that this is done is through a combination of salary sacrificing money into Superannuation to bring down a person’s taxable income and making up in the reduction of income by drawing funds from the TTR Pension.
Generally funds drawn from a TTR Pension benefit from better treatment or if over age 60 are tax free therefore not as much income needs to be drawn as is being salary sacrificed to give the same net result.
Thus the ATO receives less tax and the person’s retirement balance benefits from the tax savings.
There are also other strategies available by utilising a TTR Pension that can also be worth considering however the 2 above are the most common reasons that TTR Pensions are being used for.
Trips and Traps
As always when it comes to Superannuation and tax care needs to be taken so that breaches do not occur and legislation is adhered to i.e exceeding contribution cap amounts can lead to harsh tax charges.
General Advice Warning
The above information is general information only and personal circumstances have not been considered therefore should not be taken a financial advice.