You do not have to stop working to start drawing on your super. Once you reach age 60, a transition to retirement (TTR) pension allows you to receive regular payments from your super while you are still employed.

People use a TTR pension for two very different reasons. Some want to reduce their working hours while keeping their income relatively stable. Others continue working full-time and use the strategy to reduce their tax bill.

The rules changed in 2017, so much of the older commentary overstates the benefits. Here is how a transition to retirement pension actually works in 2026–27.

What is a transition to retirement pension?

A TTR pension, which the ATO calls a transition to retirement income stream, is an account created by moving some of your super from an accumulation account into a pension account. It then pays you a regular income while you continue working.

You choose how much to transfer. The rest remains in your accumulation account and continues to receive employer contributions.

To start a TTR pension, you must have reached your preservation age. Since the staged increase concluded on 1 July 2024, preservation age is now 60 for everyone.

A TTR pension is not the same as the account-based pension you might start once you fully retire. It has a cap on annual payments, does not allow lump-sum withdrawals in most circumstances, and its investment earnings remain taxable.

We compare account-based pensions and annuities separately on our site if you are weighing up retirement income products more broadly.

The two ways people use a TTR strategy

The first use is the one the name suggests. You cut back your hours, your salary falls, and the TTR pension tops up your income. The result is the same lifestyle, with a shorter working week.

Consider Anne, 61, earning $95,000 a year in a full-time role. She reduces her hours to four days a week, lowering her salary to $76,000. That $19,000 reduction costs her about $12,900 in take-home pay at a 32 per cent marginal tax rate, including the Medicare levy. Anne moves $250,000 of her $420,000 super balance into a TTR pension and draws $13,000 a year, tax free. Her take-home income barely changes. Her Fridays do.

The second use is less intuitive. You continue working full time, salary sacrifice heavily into super, and draw a TTR pension to replace the salary you gave up. Your income stays roughly the same, but a portion of it is now taxed at 15 per cent instead of your marginal tax rate. We work through the numbers below.

Salary sacrifice has its own rules and potential pitfalls, which we cover in detail in a separate guide on our site.

The drawdown rules: minimum 4%, maximum 10%

Every financial year, a TTR pension must pay you at least 4 per cent of the account balance, which is the standard minimum for people under 65. It cannot pay more than 10 per cent of the account balance each year.

If you start the pension part-way through a financial year, the minimum payment requirement is pro-rated based on the number of days remaining. The 10 per cent maximum generally is not.

You cannot take lump-sum withdrawals. That option generally becomes available only once you meet a full condition of release, such as retiring, ceasing an employment arrangement after turning 60, or reaching age 65.

The limits sound restrictive, but you effectively control them because you decide how much super to move into the TTR account. Move $250,000 and your annual payment range is $10,000 to $25,000. Move $100,000 and the range is $4,000 to $10,000.

Breaching the 10 per cent maximum can have significant consequences. The ATO may treat the income stream as having ceased from the start of the financial year, with tax potentially applying as though the payments were ordinary withdrawals.

How a TTR pension is taxed

Three layers of tax matter here.

Payments to you: Payments from a TTR pension are tax-free from age 60. Since you can no longer start a TTR pension before age 60, this applies to virtually everyone commencing one today.

Earnings inside the account: Investment earnings within the TTR pension are taxed at up to 15 per cent, exactly as they were in your accumulation account. This is the key difference between a TTR pension and a retirement-phase pension, where investment earnings are tax free. Before 1 July 2017, earnings within TTR pensions were also tax free, which is why commentary from that era often makes the strategy appear more generous than it is today.

Contributions going in: Concessional contributions, including employer contributions and salary sacrifice contributions, are generally taxed at 15 per cent. High-income earners with combined income and concessional contributions exceeding $250,000 may pay an additional 15 per cent under Division 293 tax, increasing the effective rate to 30 per cent.

So, the strategy does not make your money tax-free. Instead, it shifts part of your income from your marginal tax rate to a concessional tax rate of 15 per cent.

The tax saving, worked through

Meet Mark, 62. He earns $110,000, works full-time has $380,000 in super. He has no plans to slow down for a few years but wants his money working harder.

His employer pays 12 per cent super, which is $13,200 a year. The concessional contributions cap for 2026–27 is $32,500, up from $30,000 following indexation on 1 July 2026. That leaves Mark with $19,300 of available cap space.

Mark salary sacrifices the full $19,300. Here is what happens to that money under each option.

If taken as salary, it would have been taxed at 32 per cent—his 30 per cent marginal tax rate plus the 2 per cent Medicare levy. He would have kept $13,124.

If salary sacrificed into super, it is subject to only 15 per cent contributions tax. As a result, $16,405 reaches his super account.

To keep his take-home pay steady, Mark moves $200,000 of his super into a TTR pension and draws $13,200 a year tax-free, comfortably within his permitted payment range of $8,000 to $20,000. His lifestyle does not change. However, his super is now growing by roughly $3,280 a year more than it otherwise would have, simply because $19,300 of income was taxed at 15 per cent instead of 32 per cent.

Over several years, particularly as contribution caps continue to index upwards, that difference can compound into a meaningfully larger retirement balance. The exact strategy—how much to transfer to a TTR pension and how much to salary sacrifice—is where professional advice can add significant value.

What happens at 65, or when you retire

A TTR pension does not stay a TTR pension forever.

When you turn 65, it automatically converts to a retirement-phase pension. The same happens earlier if you retire or meet another full condition of release and notify your fund.

Conversion changes three key things. Earnings within the account become tax-free. The 10% payment cap disappears. And lump-sum withdrawals become available.

It also triggers the transfer balance cap. The amount moving into retirement phase counts towards your personal cap, which is subject to a general cap of $2.1 million from 1 July 2026. A TTR pension does not count towards the cap before it converts.

One practical point catches people out. Your fund knows your birthday, so the age 65 conversion happens automatically. It does not know you have retired at 62. Until you notify the fund, the account may continue paying 15% tax on earnings unnecessarily. Tell them promptly.

Insurance, Centrelink and your final balance

A TTR strategy touches more than tax, and the side effects deserve attention before you start.

Insurance is the first consideration. Your life insurance and total and permanent disability (TPD) cover will often sit inside your accumulation account, and TTR pension accounts generally cannot hold insurance.

If you drain the accumulation account to fund the pension, that cover can lapse. Contributions also need to keep flowing, because insurance in an account that receives no contributions for 16 months is generally cancelled unless you opt in to retain it.

Centrelink is the second trap. Super held in accumulation is generally exempt from means testing until you reach Age Pension age of 67.

Start a TTR income stream and that money becomes assessable under both the income and assets tests immediately. If you or your partner receive JobSeeker, Carer Payment or the Disability Support Pension, a TTR strategy could reduce those payments.

Then there is the balance you actually retire on. Drawing the full 10 per cent each year without offsetting contributions can reduce your super balance surprisingly quickly. The income top-up version of the strategy effectively involves spending part of your retirement savings earlier.

When a TTR strategy is not worth it

A TTR pension is a tool, not a default. In some situations, the benefits are limited.

Small balances rarely justify the strategy. You will run two accounts, often with two sets of fees, to generate a relatively modest drawdown band. With $80,000 in super, the maximum payment is $8,000 a year and any tax benefit is likely to be measured in hundreds of dollars.

Lower incomes can eliminate the arbitrage entirely. With taxable income of $45,000 or less in 2026–27, your marginal tax rate is 15 per cent. That matches the contributions tax rate, leaving little or no tax advantage from salary sacrificing.

Under 60, the strategy is simply unavailable. The preservation age has completed its gradual increase, and nobody under 60 can start a TTR pension.

At the top end, Division 293 tax reduces the benefit. Once income plus concessional contributions exceed $250,000, contributions are effectively taxed at 30 per cent. That narrows the gap between the contributions tax rate and the top marginal tax rate.

Fees also matter. A percentage-based administration fee on a second account can quietly erode a modest tax saving.

Getting the strategy right

The mechanics of a transition to retirement pension are straightforward. The judgement calls are not. How much to move, how much to sacrifice, what it does to your insurance, your Centrelink position and the balance you will actually retire on. Those answers differ for every person and every year the caps change.

Alteris wealth advisers build TTR strategies as part of a full retirement plan, not as a standalone trick. Talk to an Alteris wealth adviser before you restructure anything.

Frequently asked questions

Can I withdraw a lump sum from a transition to retirement pension?

No. A TTR pension can only pay a regular income of between 4 per cent and 10 per cent of the account balance each financial year. Lump-sum withdrawals generally become available once you meet a full condition of release, such as retiring or reaching age 65.

Do I pay tax on TTR pension payments?

TTR pension payments are tax-free once you reach age 60, and 60 is now the earliest age at which you can start one. However, the investment earnings within the account remain taxed at up to 15 per cent until the pension converts to retirement phase.

Can I keep contributing to super while I have a TTR pension?

Yes, and the salary sacrifice version of the strategy depends on it. Employer and salary sacrifice contributions continue to flow into your accumulation account, subject to the $32,500 concessional contributions cap for 2026–27.

Will a TTR pension affect my Centrelink payments?

It can. A TTR income stream is generally counted under the income and assets tests, even before you reach Age Pension age, whereas super held in accumulation is generally not. Check the impact before starting a TTR pension if you or your partner receive an income support payment.

Alteris Financial Group Pty Ltd (ABN 59 133 479 115) holder of AFSL No.402370. The information contained in this article is general in nature and does not take into account your personal circumstances. We recommend you consult a financial adviser whose advice will take into account your particular objectives, financial situation and individual needs.

Last updated: July 2026