When you reach your preservation age, you can access your super as a transition to retirement (TTR) pension without having to retire. This means you can keep earning while also making the most of your super. It can also have some tax benefits.

To start you’ll have to transfer some of your super out of a super accumulation account and into a super-based pension. Your employer will need to keep making payments into your accumulation account so you’ll need to keep some money in there to keep it open.

TTR strategies can be very complex. However, they basically work in one of two ways.

1. Accessing your super while you work full time

You can continue to work full time while your employer makes contributions into your super account. You may also ‘salary sacrifice’ into your super, which is basically re-directing part of your before-tax salary directly to superannuation. 

Salary sacrifice and employer contributions are limited to your ‘concessional contributions cap’ each year, so check the amount you are contributing to make sure you don’t get penalised for contributing too much. 

The amount of salary you re-direct to superannuation can be supplemented by payments from a TTR pension drawn from your super. This has the potential for the following tax concessions:

  • Any salary sacrifice into your super will generally be taxed at 15%1 which may be lower than the marginal tax rate you would pay on that amount if you received it as salary
  • You can replace some or all2 of the income you are salary sacrificing with your pension payments, so you may be able to maintain your lifestyle while making tax savings
  • For those age 60 or over, pension payments are tax-free. This means you have swapped your after tax employment income for a tax free pension income (less the 15% tax on your contributions). Between preservation age and age 59 the taxable portion of pension payments will be taxed at marginal tax rates with a 15% tax offset3, meaning the tax advantages of the strategy are reduced if you are under age 60

2. Accessing your super while you reduce your hours

You can cut down your working hours and draw on your super through a TTR pension to supplement your lost income. This will allow you to ease into retirement from both a time and financial perspective. It will however reduce your super balance if your pension is paying more than your super contributions.

Things to consider

There are rules and limitations in relation to TTR and it may not suit your individual circumstances as the rules can be complex. It’s a good idea to seek professional tax advice from an accountant or financial planning advice from a financial planner to help you decide if it’s the right choice.

Explore our super & retirement resources

Tell me more

Things you should know

1If your income for these purposes exceeds $250,000, you are subject to an additional 15% tax on an amount of your concessional contributions.  Please see the ATO website for more information on Division 293 tax.

2You will need a large enough super balance in a TTR pension for pension payments to fully replace salary sacrifice amounts.  This strategy will not suit everyone, please speak with your financial planner to confirm whether this strategy is suitable for your personal circumstances.

3These tax rules apply if you are a member of a taxed super fund (most funds). If you are a member of an untaxed super fund (some government funds), additional tax may apply to your pension payments.

This article contains general advice only. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial planner before making any financial decision based on this information. This document has been prepared by Commonwealth Financial Planning Limited ABN 65 003 900 169, AFSL 231139, (Commonwealth Financial Planning) a wholly-owned, but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124. Commonwealth Financial Planners are representatives of Commonwealth Financial Planning. 

Information in this article is based on current regulatory requirements and laws. While care has been taken in the preparation of this document, no liability is accepted by Commonwealth Financial Planning, Commonwealth Financial Planning related entities, agents and employees for any loss arising from reliance on this document. Commonwealth Financial Planning is registered with the Tax Practitioners Board as a Registered Tax (Financial) Adviser. However your Financial Planner is not a Registered Tax Agent. Consequently, tax considerations are general in nature and do not include an assessment of your overall tax position. You should seek tax advice from a Registered Tax Agent.