Retirement can have a large impact, both on your daily routine and your cash flow situation, but there is a way that you can ease yourself into retirement. It’s called a Transition To Retirement (TTR) pension.
How does the TTR pension work?
Once you reach your preservation age, which was previously 55 years of age but which will increase to 60 years of age within the next ten years, you have two options:
- Retire and have access to your superannuation funds as a lump sum if you wish
- Continue to work, transfer your super to a super pension and begin drawing a TTR pension of between 4% and 10% of your account (once you turn 65, you can access your full superannuation even if you continue working)
The TTR pension is designed to allow workers to either boost their income while continuing to work full-time, or maintain their income while moving to a part-time or casual roll.
By continuing to work while drawing a TTR pension, your superannuation balance will continue to grow through the employer guaranteed contributions, as well as any additional concessional or non-concessional contributions you make. Concessional contributions can be particularly helpful, as they will only incur a 15% tax rate, which will more than likely be significantly lower than your marginal tax rate at that stage of your career.
With ever-increasing life expectancies (both men and women in Australia now have an average lifespan of more than eighty) there is a growing concern that even with Australia’s employer guaranteed superannuation contributions, many Australians won’t have sufficient savings to enjoy the type of retirement lifestyle they would like. A TTR pension can be beneficial for those individuals who would like to reduce their workload but are uncertain that they can afford to retire before turning 65.
Before you decide to start drawing a TTR pension, there are several issues that you will need to consider:
- Does your superannuation fund allow TTR pensions? Defined benefit funds (where you are guaranteed a particular return whether or not your investments actually achieve that return) do not allow TTR pensions.
- If you have an insurance policy through your superannuation fund, what effect will drawing the TTR pension have on your insurance? You may find your cover will be reduced or may even cease altogether.
- Do you or your partner already receive any pensions or government assistance? Like insurance, these could be affected by a TTR pension.
If you decide that a TTR pension suits your needs, you should discuss your options with an expert to ensure you gain the maximum benefits on offer.
By Jennifer Lowe