Transitioning into Retirement

Reduce your hours or boost your super

Transition to retirement Pension

Transition To Retirement (TTR) Pension

If you have reached your preservation age and  are still working you can access your superannuation in the form of a Transition To Retirement Pension or TTR pension.

 

With a TTR pension you can access up to 10% of the starting balance of the pension in the financial year in which you begin the pension. 

 

You have to withdraw a mandatory minimum amount each financial year.

 

In normal times this equates to 4% of the pension amount but this financial year this has been reduced to 2% because of the covid-19 situation.

 

It is important to note that if you start a TTR pension while you're under 60 years of age, the taxable portion is assessable and taxed at your marginal tax rate less a 15% tax offset.

 

For those over 60 the pension payment is tax-free.

 

For those aged  60 and over, a TTR pension strategy allows you to maximise your concessional contributions into your accumulation account while drawing on your tax-free TTR pension so that your net income remains unchanged.

 

The result is a significant income tax saving which goes towards boosting your super.

 

Alternatively, you could choose to reduce your hours and then start a T2R pension to supplement your income.

 

There are a number of ways a TTR pension strategy can be used as you transition into retirement.

 

As with all superannuation advice we provide, we research and compare your existing fund as well as  two other highly rated funds before making our final recommendation.

 

This is important because the default nature of our superannuation system means that the current super fund you happen to find yourself in is often a matter of luck and may not be suitable for your needs in retirement. 

HOW A TTR PENSION STRATEGY WORKS

TTR pension strategy - reduced hours

If you want to work part-time upon reaching age 60 without significantly reducing your take home pay, a TTR pension strategy might be something you wish to consider.

Example:

Bob (60) earns $100,000 in gross salary and has $300,000 in super.

He wants to reduce his working hours to 3 days a week while retaining his net income.

Bob can do this by starting a TTR pension with $300,000.

Current situation:

Gross income = $100,000

Net income (after tax) = $75,813

Proposed situation:

Gross income = $60,000

Net income (after tax) = $50,013

Tax-free TTR pension = $25,800

By starting a TTR pension, Bob was able to work part-time while retaining his full-time equivalent net income.

TTR Pension Strategy - boost super

You can also use a TTR pension strategy to supplement your income if you want to maximise your concessional contribution cap while continuing to work full-time.


Example:

Using the example of Bob again:

Current situation:
Gross salary = $100,000
Net income = $75,813
Employer super = $10,000
Bob salary sacrifice = $0


Proposed situation:

Gross salary = $100,000
Employer super = $10,000*
Bob salary sacrifice =  $17,500
Reduced gross salary = $82,500
Net income = $64,650
Pension income = $11,163
*Assumes Bob's employer SG has not reduced

In the above example, Bob is able to maximise his concessional contribution cap this year by salary sacrificing $17,500 for the year.

This has reduced his take home pay to $64,650. In order to "top up" his take home pay to normal levels he withdraws $11,163 from his TTR pension.

His income tax has reduced from $24,187 to $17,850, a difference of $6,337.

Because he has made an additional $17,500 in concessional contributions, he pays  an extra $2625 in contributions tax.

The net result is that his take home pay remains unchanged, however, he has been able to boost his super by ($6,337 - $2,625) = $3,712 in just one year.

 

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