As you get closer to retirement, you’re probably focusing on sorting out your super. Or, you might want to wind down and work less without compromising your lifestyle.

That’s where a Transition to Retirement Pension (TRP) could work for you. It could help you through the next stage of life when you’re not quite ready to give up working yet.

Give me the main points

  • If you’ve reached preservation age but don’t want to fully retire, you can access some of your super preserved as an income stream while you keep working.
  • Income earned on investments in your transition to retirement pension account is taxed at a maximum rate of 15 per cent (including capital gains).
  • Contact a tax professional and/or a financial adviser before deciding on any super or retirement strategies to make sure they are right for you.

Work less for the same income

If you want to ease into retirement by reducing your hours and working part-time, you can maintain your lifestyle by using some of your super to top up your income through a Transition to Retirement Pension (TRP). The key benefit of the strategy is to draw income from the TRP to replace the employment income. The taxable portion of pension payments you draw from your super (between preservation age and 59) is taxed at your marginal tax rate with a 15 per cent rebate. If you’re 60 or over, the pension payments you receive will be tax free (if paid from a taxed fund). Below we explore more detail about how much you can withdraw and how payments work.

Another strategy is to retain your current employment arrangement (e.g. continue working full-time) while maximising the amount you can concessionally contribute to your super account. Similarly, income payments drawn from the TRP can replace the income contributed to super.

You should make sure you seek advice from a tax professional or financial adviser if you are considering a TRP, to make sure it works for you.

When can you start a TRP?

You can start a transition to retirement pension as soon as you reach your preservation age:

Your date of birth

Preservation age

Before 1 July 1960

55

1 July 1960 – 30 June 1961

56

1 July 1961 – 30 June 1962

57

1 July 1962 – 30 June 1963

58

1 July 1963 – 30 June 1964

59

After 30 June 1964

60

Source: ATO 2017

How much you can withdraw and how payments work

You’ll need to draw a minimum amount of 4 per cent a year from your TRP (increasing to 5 per cent when you reach 65). You’ll be limited to taking a maximum of 10 per cent a year of your account balance in pension payments until you meet a full condition of release. This could be permanently retiring, reaching 65, or ending an employment arrangement after 60.

From 1 July 2017, any income earned on investments in your TRP account is taxed at up to 15 per cent (including capital gains). Once you meet a full condition of release, you’ll need to notify your fund. The earnings in your pension will become tax free once you meet a full condition of release.

Is a TRP right for you?

If you’re under 60, the pension income may affect payments like Family Tax Benefit or Child Support.

Understanding what’s best for you and keeping up with regulations can be complex, so it’s important to seek advice from a financial adviser or tax professional to find out if the TRP is right for you.

We can help

MLC, our super and retirement specialist, can help with the right TRP solution for you. MLC has been helping Australians create the best possible financial future for 130 years. Find out more about MLC.

For more information talk to MLC on 132 652 between 8am to 6pm AEST, Monday to Friday, or contact a financial adviser.

Request a complimentary financial planning consultation

Or call us on 1300 558 863 from 9am - 6pm Mon-Fri (AEST/ADST).

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