As you get closer to retirement, you may be focusing on getting as much money into super as you can. Or, you might want to wind down and work less without compromising your lifestyle. A transition to retirement pension may help you through this next stage of life.

Give me the main points

  • If you’ve reached retirement age but don’t want to fully retire, you can access some of your super as an income stream while you keep working.

Transition to retirement: what does it mean?

Transition to retirement is for people who’ve reached their preservation age but aren’t yet ready to retire.

Here’s how it works: once you reach your preservation age (see below), you can open a pension account alongside your regular super account. You’ll receive your pension income payments directly to your bank account.

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 superannuation to top up your income. Depending on your age, you’ll also pay less tax on the pension payments you draw from your super. If you’re 60 or over, the pension payments you receive will be tax free when you receive them (if paid from a taxed fund).

You should consider your long term retirement needs before you decide to start your transition to retirement pension. Remember the earlier you access your super, the less you may have for retirement in the long term.

When can you start retirement?

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

Is a transition to retirement pension right for you?

Understanding what’s best for you and keeping up with regulations can be complex. If you’re under 60, account-based pension income may affect payments like Family Tax Benefit or Child Support.

You’ll need to draw a minimum amount of four per cent per year from your transition to retirement pension (increasing to five per cent when you reach 65). You’ll be limited to taking a maximum of 10% per 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.

Currently, any earnings on amounts you hold in a transition to retirement pension are tax-free. From 1 July 2017, any income earned on investments in your transition to retirement pension account will be taxed at up to 15% (including capital gains). Once you meet a full condition of release, you’ll need to notify your fund to find out how your earnings in your pension become tax free.

This can be a complex area so it’s important you speak with a financial adviser to understand whether a transition to retirement pension is right for you.

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