As you get closer to retirement, you will start to wind down and want to 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.

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% rebate. If you’re 60 or over, the pension payments you receive will be tax free (if paid from a taxed fund).

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 your super.

You should 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

How much you can withdraw and how payments work

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

From 1 July 2017, any income earned on investments in your TRP account is taxed at up to 15% (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 one of the full conditions 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.

Important information

This information is provided by National Australia Bank Limited ABN 12 004 937 AFSL No. 230686 (NAB), a member of the National Australia Bank Group of companies. Any advice is general in nature and has been prepared without taking into account your personal objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to those matters. See the NAB Financial Services Guide for details about relationships between NAB and product issuers, and remuneration or benefits that may be received in relation to NAB’s authorised services.

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