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. The amount you salary sacrifice 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 be taxed at 15% which is likely to be lower than your marginal tax rate
- For those 60 or over, pension payments are tax-free. Between preservation age and 59 the taxable portion of pension payments will be taxed at marginal tax rates with a 15% tax offset. This means you can replace the income you are salary sacrificing with your pension payments so you can maintain your lifestyle while making tax savings1.
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 tax 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.
1These 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.