Transition to Retirement (TTR) Pensions: Are They Still Worth It?
TTR pensions were the darling of pre-retirement strategies. Then the rules changed. Here's when they still make sense—and when they don't.
What Is a TTR Pension?
A Transition to Retirement pension lets you access your super once you reach preservation age, even if you're still working. You can draw between 4% and 10% of your balance each year.
Originally designed to help people reduce their hours while supplementing their income, TTR pensions became popular for a different reason: tax arbitrage.
The Original TTR Strategy
- Salary sacrifice heavily into super (reducing your marginal tax rate)
- Draw TTR income to replace the lost take-home pay
- Pay less tax overall because super contributions are taxed at 15%
- Meanwhile, your TTR pension investment earnings were tax-free
What Changed in 2017
The government caught on. From 1 July 2017:
- TTR pension earnings are now taxed at 15% (same as accumulation phase)
- The tax-free treatment only applies once you fully retire or turn 65
This killed most of the arbitrage benefit. But not all of it.
When TTR Still Makes Sense
Good for TTR
✓ High marginal tax rate (37%+)
✓ Room to salary sacrifice
✓ Close to retirement
✓ Want to reduce work hours
Skip TTR
✗ Low marginal tax rate
✗ Already maxing super contributions
✗ Many years until retirement
✗ Need flexibility with your super
The Numbers Example
Sarah earns $120,000 and is 58 years old. Her marginal tax rate is 34.5% (including Medicare levy).
Without TTR:
- $120,000 salary, ~$31,000 tax = ~$89,000 take-home
With TTR strategy:
- Salary sacrifice $20,000 extra into super
- Tax on $20,000 contribution: $3,000 (at 15%)
- Draw $17,000 from TTR (after 15% tax on earnings)
- Reduced PAYG tax on $100,000 salary
- Net benefit: roughly $3,000-4,000 per year
The key insight: The strategy works when there's a meaningful gap between your marginal tax rate (34.5%+) and the 15% super contributions tax. If you're earning under $90,000, the benefit shrinks considerably.
The Drawbacks
TTR pensions come with trade-offs:
- Restricted access: You can only draw 4-10% per year until you fully retire
- Complexity: You need to manage both accumulation and pension accounts
- Fees: Some funds charge more for pension accounts
- Locked in: Once in pension phase, some rules are different
- Transfer balance cap: TTR pensions don't count toward your $1.9M cap until you retire, but you need to understand how this works
The "Reduce Hours" Use Case
The original purpose of TTR still works well. If you want to cut back to 3 or 4 days a week but can't afford the income drop, a TTR pension bridges the gap.
This isn't about tax arbitrage—it's about lifestyle. And for many people approaching 60, that's exactly what they need.
When to Convert to Account-Based Pension
Once you meet a full condition of release (retire after preservation age, or turn 65), your TTR automatically converts to an account-based pension. At that point:
- Investment earnings become tax-free
- The 10% withdrawal cap disappears
- You have full flexibility with your money
Some people deliberately trigger retirement (leaving a job at 60+ with no intention to work 10+ hours weekly) specifically to access these benefits.
How Talk Through Wealth Helps
Modelling whether TTR makes sense for your specific situation requires looking at the whole picture:
- Calculate your actual tax benefit (or lack thereof)
- Compare TTR vs non-TTR scenarios over time
- Model the transition from TTR to full pension phase
- See how reduced work hours affect your super growth
- Factor in Age Pension implications later
Model Your TTR Strategy
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