Understanding Transition to Retirement Pensions

If you have reached your preservation age you can use a transition to retirement pension to access your superannuation as a non-commutable income stream while you are still working. This may be particularly attractive if you have reduced your working hours and need to top-up your income to maintain your standard of living.

What is a transition to retirement pension?

Transition to retirement pensions allow you to access your superannuation as a non-commutable income stream, after reaching preservation age (see below), but while you are still working.

The aim of these income streams is to provide you with flexibility in the lead up to retirement. For example, you may choose to reduce your working hours and at the same time access your superannuation as a transition to retirement pension that can supplement your other income. It may also allow you to salary sacrifice or claim tax deductions for contributions to give your retirement savings a boost.

Not all superannuation funds offer a transition to retirement pensions, so you need to check with your own fund to see if they do. You can also start one in a self-managed superannuation fund.

Are there any special characteristics?

These pensions are essentially like a normal account-based pension, but with three important differences.

Firstly, they are non-commutable, which means they cannot be converted into a lump sum until you satisfy a condition of release, such as retirement or age 65.

Secondly, you have a minimum pension amount you must withdraw each year but you can only withdraw up to 10% of the account balance (at 1 July). No lump sum withdrawals are allowed.

Thirdly, the earnings continue to be taxed at 15% in the fund, regardless of start date.

What is my preservation age?

Your preservation age is generally the date from which you can access your superannuation benefits and depends upon your date of birth.

Date of birthPreservation Age
Before 1 July 196055
1 July 1960 – 30 June 196156
1 July 1961 – 30 June 196257
1 July 1962 – 30 June 196358
1 July 1963 – 30 June 196459
After 30 June 196460


How are transition to retirement pensions taxed?

The earnings on investments that support a transition to retirement pension are taxed at the normal superannuation rate of a maximum of 15%.

In relation to the income payments you withdraw, while you are under age 60, the taxable part of your pension payments received are taxed at your marginal rate, but you receive a 15% tax offset if your pension is paid from a taxed source*. Once you reach age 60, your pension payments are tax-free if paid from a taxed source*.

* Most people belong to a taxed superannuation fund. Some government or other defined benefit superannuation funds may be untaxed and you will pay higher tax on these pensions.

Is a transition to retirement pension right for you?

Transition to retirement pensions can provide you with flexibility in the years leading up to your retirement and may help to boost your retirement savings in some circumstances. You may find transition to retirement pensions attractive if you:

  • have reduced working hours from full-time to part-time and want to replace the forgone salary with an income stream from superannuation
  • are able to salary sacrifice or claim deductions for contributions and the amount you draw as income is less than you contribute back into superannuation.


Contact us today!

The transition to retirement rules and associated strategies can be very complicated. Please contact our office before deciding if this type of income stream and strategy is right for you.


Daniel Twentyman B.Bus.(Eco) Dip.F.S.(FP) Financial Planner – Authorised Representative