Transition to Retirement Pensions Posted on January 9, 2013 - 9:00 am by Sliver and Young A transition to retirement pension is a great way to supplement your income if you are moving from full-time employment to retirement. The benefit of this pension is that it allows you to supplement your income to maintain your lifestyle if you have chosen to reduce your working hours. It may also allow you to salary sacrifice to give your retirement savings a boost and also reduce your taxation liability. Not all superannuation funds offer transition to retirement pensions so you will have to check with your superannuation fund to determine if it is provided. You can start a transition to retirement pension in a self-managed superannuation fund, subject to the provisions in the Trust Deed. If you have reached your preservation age (refer to the table below) you can use a transition to retirement pension to access your superannuation as a non-commutable income stream while you are still working. Non-commutable means you cannot convert the pension into a lump sum until you satisfy a condition of release, such as retirement or reaching age 65. Do not confuse preservation age with a condition of release. You may have reached preservation age but not have met a condition of release. Your preservation age is generally the date from which you can access your superannuation benefits and depends upon your date of birth. 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 You must also withdraw a minimum amount as a pension each year and not exceed the maximum of 10% of the account balance at 1 July. Remember, no lump sum withdrawals are allowed. In terms of taxation of transition to retirement pensions, if you are under age 60, the taxable part of your pension will be taxed at your marginal rate, but you receive a 15% tax offset if your pension is paid from a taxed source. However, once you reach 60, your pension is tax-free if paid from a taxed source. You can identify the taxable part of your superannuation benefit by contacting your superannuation fund or by looking at your member statement. If you are operating a self-managed superannuation fund, your Chartered Accountant will be able to help you identify the taxable portion. Most people belong to a taxed superannuation fund. Some government superannuation funds may be untaxed and in this instance you will pay higher tax on pensions. You cannot add more money to your transition to retirement pension but if you are eligible to contribute to your superannuation, you may be able to commence a new superannuation accumulation account. A transition to retirement pension provides flexibility in the years leading up to retirement. They may supplement your income for reduced working hours, allow you to boost your superannuation retirement savings, and save you tax. However, there is a level of complexity that needs to be addressed. Your Chartered Accountant will be able to assist you in determining whether a transition to retirement pension is right for you.