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.

There was another great benefit of setting up the pension which was that all the funds supporting the pension move in to a tax exempt status. Yes that means those funds paid no earnings tax and in fact they received a full refund of any franking credits on your investments. For the average investor this can increase your returns by 0.5% to 1% a year risk free every year! However that tax free status will be removed as of 1 July 2017.

The strategy still remains effective for those needing a boost in income or those who can combine the pension with salary sacrifice.

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 to give your retirement savings a boost.

Not all superannuation funds offer the 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 two 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.

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 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 are transition to retirement pensions taxed?

Transition to retirement pensions are taxed the same as regular superannuation income streams.

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*.

  • Most people belong to a taxed superannuation fund. Some government superannuation funds may be untaxed and you will pay higher tax on pensions.

Can you still contribute to superannuation?

As long as you are eligible to contribute, you and your employer can still contribute to superannuation for your benefit. In any case, your employer’s usual superannuation guarantee obligations would still apply. You need to have an accumulation account to pay these amounts into.

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 can help to boost your retirement savings in some circumstances.

People who might find the transition to retirement pensions attractive include those who:

  • have reduced working hours from full-time to part-time, eg down to three days per week. The reduced salary can be topped up with income from the transition to retirement pension
  • are able to salary sacrifice to superannuation – the outcome of combining the transition to retirement pension with salary sacrifice can be a greater build-up of superannuation savings by the time you reach actual retirement

The transition to retirement rules and associated strategies can be very complicated. It is recommended that you seek expert advice from your financial adviser before deciding if this type of income stream and strategy is right for you.

Want a Superannuation Review or are you just looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2016 the year to get organised or it will be 2026 before you know it.

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Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Leave a comment


  1. Lawrence Aubert

     /  April 21, 2021

    Hi Liam,
    Question: SMSF Share investing versus share trading

    I’m a trustee of our own smsf and we’re in full pension phase. 20% of our diversified investments are in an smsf registered commsec share trading account which is written into our trust deed.
    To date I’ve only ever bought and held growth shares for the long term in commsec.
    However in this current volatile climate if I was to buy and sell more frequently such as making 1 or 2 buy/sell trades daily, the portfolio growth for the funds members I believe will likely be comparatively better by years end & therefore to the advantage of the funds members.
    So my question is, Does the ATO draw a line between what they consider to be share trading ( ie running a business within the fund ) versus share investing within a fund ?
    Thanks for any clarity you can provide.


    • I have not seen any clear direction from the ATO and would recommend seeking guidance via a Private Ruling if you wish to treat it as a business. However 1-2 trades per day would not seem enough to warrant attention.

      For trustees of an SMSF who regularly trade listed securities to such an extent that they may be seen as carrying on a share-trading business the guidance on what is considered is that the repetition, volume and regularity of the trading, the purpose of profit-making, the organisation of the trading using ordinary commercial activities in a continuous and systematic way would all point to something more than passive investing in the share market.

      Hope this helps but as always work with your accountant/administrator to consider the above and make sure you have s clear, well written investment strategy about your purpose and process. Liam


  2. Superannuation or super is a way of saving to provide an income during retirement. Superannuation funds have an advantage over normal savings accounts because they pay less tax.


  1. SMSF Member Guide to Salary Sacrifice and Superannuation | The SMSF Coach
  2. Do you want your own Cayman Island type account for your Superannuation ? | The SMSF Coach
  3. Don’t need to be afraid of Malcolm Turnbull reviewing Superannuation | The SMSF Coach
  4. A Closer Look at the Latest ATO SMSF Statistical Overview | The SMSF Coach
  5. 55 no Longer Target Age for Transition to Retirement Pension Strategy | The SMSF Coach
  6. How do I start a Pension in a SMSF | The SMSF Coach
  7. Using superannuation contribution splitting in a SMSF ( Self Managed Superannuation Fund ) « SMSF Coach

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