Transition To Retirement

As the term suggests, the transition-to-retirement (“TTR”) rules enable access to superannuation before retirement or before turning 65, through the drawing of an income stream (“TRIS”) while still working.

Transition-to-retirement pensions can be commenced in the period between preservation age (which is 55 years or later depending on your date of birth – see table below) and the time of retirement or turning 65 years. Retirement is the cessation of employment.

If aged 65 or more, or under 65 and over preservation age and retired, the transition-to-retirement rules do not apply, but an account based pension can be drawn.

Preservation age based on date of birth

Date of birth	Preservation age
Before 1 July 1960	55
1 July 1960 to 30 June 1961	56
1 July 1961 to 30 June 1962	57
1 July 1962 to 30 June 1963	58
1 July 1963 to 30 June 1964	59
After 30 June 1964	60

Up to 30 June 2017, super fund earnings on the assets used to finance the pension were tax free, provided the pension was drawn as a ‘Transition to Retirement Non-Commutable Income Stream’.

‘Non-commutable’ means that the pension entitlement cannot be drawn as a lump sum payment (unless some other condition of release is met – such as retirement or turning 65 years).

From 1 July 2017 this concession has been removed.

Tax free earnings for TTR funds removed from 1 July 2017

From 1 July 2017, the tax-exempt status of earnings from assets that support a transition-to-retirement income stream (pension) has been removed. Earnings from assets supporting a TRIS will therefore be taxed at 15% regardless of the date the TTR commenced. See further explanation and guidance links here.

Up to 30 June 2017 it was also possible to elect to treat payments from a super income stream as a super lump sum for tax purposes. Super lump sums up to the low rate cap were tax-free. This concession is removed from 1 July 2017.

Additionally, from 1 July 2017, all commutations, including partial commutations, do not count towards the minimum annual pension payment requirement for super income streams. There is more information about these new rules here.

Transition to retirement pension fund tax rates

	Up to 30 June  2017	From 1 July 2017
Income	0%	15%
Capital gains on assets owned less than 12 months	0%	15%
Capital gains on assets owned 12 months or more	0%	10%

Tax on pension drawings from a TTR fund

Tax changes from 1 July 2017 are applicable to the super fund earnings (as above). There has been no change to the tax rate on TRIS pension drawings.

	Tax rate	Pension rebate
From preservation age to 59 – tax free component	0%	n/a
From preservation age to 59 – taxable component	Marginal rate	15%
Age 60 and over	0%	n/a

Until age 60, the pension is included in taxable income less a 15% tax offset. From the age of 60 the pension becomes tax free.

The payment of any tax-free component – such as contributions for which no tax deduction has been claimed – remains tax-free whenever withdrawn (subject to the preservation rules).

The proportion of taxable and tax-free components in a pension payment must reflect the same proportion as those components in the super fund.

Minimum and maximum withdrawals

The annual minimum payment is calculated as at 1 July for each financial year.

Each financial year a maximum of 10% of the super fund may be drawn from a TRIS account.

Minimum drawings for all age groups have been halved for the 2020 and 2021 financial years as part of the COVID-19 response measures. The minimum percentage withdrawal rates are listed here.

The calculation of minimum/maximum pension is made by multiplying the specified percentage by the fund balance at the beginning of the financial year (1 July).

Super Contributions While In Transition

While still working during the transition phase, super contributions including super guarantee and salary sacrifice can still be accumulating.

With this strategy being followed in the crucial years from preservation age to retirement, the combined low tax and investment accumulation effects can considerably boost the value of an individual’s superannuation assets.

Moving to retirement phase

After 30 June 2017, once a member has retired or turned 65, the fund will enter the retirement phase and therefore become non-taxable.

It will also therefore be subject to the transfer balance cap rules, and account-based pension drawing limits.

Certain capital gains consequences associated with introduction of the transfer balance cap rules are subject to transitional relief, which operate to re-set asset values to current value so as to preserve historical tax-free capital gains. For further explanation see Law Companion Guideline LCR 2016/8.

This is not advice. Please seek professional assistance before taking action.

Further information

• Practical Compliance Guideline PCG 2017/3 (applies 2017-18)
• Transition to retirement pension – esuperfund.com.au
• Changes to transition-to-retirement income streams from 1 July 2017 – GN 2019/1
• Transition to retirement – ato.gov.au
• See also contributions caps
• Spouse super contributions
• SMSFs in the post Superannuation reform environment

This page was last modified 2021-10-19