The Transition to Retirement rules were introduced to help older Australians gradually reduce their work hours without a dramatic income cut. In practice, many use TTR as a tax-efficiency strategy while still working full-time.
- 1. Open a TTR income stream. Once you reach preservation age (55–60 depending on birth year), you can convert part or all of your super balance into a TTR pension account. You must draw between 4% and 10% of the balance annually as pension income.
- 2. Salary sacrifice to replace the income. You instruct your employer to redirect part of your pre-tax salary into super instead of paying it to you. This reduces your assessable income and the tax you pay on it.
- 3. The pension tops up your take-home. The TTR pension payment replaces the income you sacrificed. Net result: similar cash in hand, lower income tax, more going into super.
- 4. Age 60 makes it more powerful. From 60, TTR pension payments are completely tax-free, which dramatically improves the net benefit. Under 60, the pension is taxable income (with a 15% offset on the taxed-element portion).
- 5. Earnings inside TTR are taxed.Since 2017, investment earnings inside a TTR account are taxed at 15% — the same as the accumulation phase. TTR no longer provides a tax-free earnings environment. The strategy's benefit comes primarily from the salary sacrifice tax saving.