For thirty years the instruction was simple. Put money into super, don’t touch it, keep going. Then you reach 60, you’re still working, and nobody has explained how you’re actually meant to start using any of it. Retirement gets talked about like a single day you clock off, but for most people it isn’t. It’s a slowing down, often over several years, and there’s a specific tool built for that stretch. It’s called a transition to retirement pension, and it’s widely misunderstood.
What is a transition to retirement pension?
Once you reach your preservation age, which is now 60 for anyone born after June 1964, you can start drawing an income from your super without stopping work. You move part of your super into a transition to retirement (TTR) pension and draw a regular income from it, somewhere between 4% and 10% of the balance each year. The rest of your super keeps ticking along. From 60, the income you draw is tax-free in your hands.
That’s the mechanism. What people do with it splits into two quite different strategies.
Using a TTR pension to build super while you keep working full-time
The first version is for people who want to keep working as they are but put more into super on the way through. It works because of the gap between two tax rates. Money salary sacrificed into super is taxed at 15%. Taken as salary, that same money is taxed at your marginal rate, which for most people reading this is closer to 39% or 47% once Medicare is counted.
So you salary sacrifice more of your pay into super, which drops your take-home income, and you replace that shortfall with tax-free income from your TTR pension. Your take-home pay stays roughly level, but more of your money lands in super taxed at 15% instead of your marginal rate. Across the years before you retire, that difference adds up.
Using a TTR pension to cut back your hours
The second version is simpler and, for a lot of people, the more appealing one. You want to go from five days to three, or step off the executive treadmill, but you can’t afford the full drop in income yet. A TTR pension lets you top up a reduced salary with an income stream from your super, so you can wind back your hours while keeping the household running.
Take someone at 61 who has spent years running her own practice and wants to move to three days a week without the household feeling it. A TTR pension can bridge the two days of income she’s giving up, so the decision becomes about how she wants to spend her time rather than whether the budget survives it. This is closer to what the policy was designed for in the first place: easing out of work rather than stopping dead.
How a transition to retirement pension is taxed
Here’s the part that trips people up, because the strategy had a bigger payoff before 2017. Back then, the super supporting a TTR pension paid no tax on its earnings. That’s no longer true. Since 2017, the investment earnings inside a TTR pension are taxed at 15%, the same as any accumulation account. The earnings only become tax-free once you meet a full condition of release, which generally means retiring or turning 65.
So the pension income you draw is tax-free to you from 60, but the money backing it is still being taxed inside the fund. That change narrowed the benefit considerably. It didn’t kill the strategy, but it means the numbers are tighter and worth checking rather than assuming.
How the concessional contributions cap limits the strategy
The salary sacrifice version runs into a ceiling: the concessional contributions cap. For 2026-27 that cap is $32,500, and it includes the super your employer already pays you. On the 12% super guarantee, someone earning $200,000 is already having around $24,000 paid in before they salary sacrifice a cent. That leaves only about $8,500 of room to add.
For high earners the cap fills fast, which limits how much extra you can push through. If your total super balance is under $500,000 you may be able to carry forward unused cap from earlier years, but most people in their late 50s and 60s on a strong income are past that balance, so that door is often closed. And if your income plus concessional contributions tops $250,000, Division 293 applies an extra 15% tax on those contributions. Even then, 30% still beats a 47% marginal rate, but the gap you’re playing for gets smaller.
Is a transition to retirement strategy worth it?
For some people, clearly yes. For others, the effort outweighs the gain. It depends on your marginal tax rate, how much cap room you actually have, the size of your balance, and which of the two strategies you’re chasing. Someone cutting back to three days a week is solving a different problem from someone trying to squeeze a bit more into super before they finish. The two aren’t mutually exclusive either, and plenty of people use a TTR pension for both at once.
This is one of those areas where general rules only take you so far. Whether a transition to retirement strategy leaves you meaningfully ahead comes down to your own numbers, and small differences in those numbers change the answer.
Getting advice on a transition to retirement strategy
If you’re within a few years of winding down, a transition to retirement strategy might be worth setting up, or it might not be worth the effort for your situation. A complimentary strategy session with one of our Sydney financial advisers is a good place to talk it through. We’ll get a clear picture of where you’re at and what you’re trying to do, and whether a TTR approach is worth looking at more closely.
Frequently asked questions
What is a transition to retirement pension?
It’s a way to draw a regular income from your super while you’re still working, once you’ve reached your preservation age. You move part of your super into the pension and draw between 4% and 10% of the balance each year, while the rest stays invested.
What age can I start a transition to retirement pension?
From your preservation age, which is now 60 for anyone born after June 1964. You don’t have to stop working to start one.
Is income from a transition to retirement pension taxed?
The income you draw is tax-free in your hands from age 60. The earnings inside the fund are taxed separately, at 15%, until you meet a full condition of release.
Is a transition to retirement strategy still worth it?
Less than it was before 2017, when the earnings supporting the pension were tax-free. They’re now taxed at 15%, the same as an accumulation account. The remaining benefit comes mainly from salary sacrificing at 15% instead of your marginal rate, so whether it stacks up depends on your own numbers.
Can I keep working full-time and have a transition to retirement pension?
Yes. Many people use one while working full-time purely to move more into super tax-effectively, without changing their hours at all.
How much can I withdraw from a transition to retirement pension?
Between 4% and 10% of the account balance each financial year. You can’t take it as a lump sum while it’s still a transition to retirement pension, only as a regular income.
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