What even is a TTR pension?

What’s a TTR pension? Transition to Retirement is a phrase that pops up a LOT in our day to day, but what does everyone mean when they say they’ve got a TTR pension?

What’s a Transition to Retirement Pension?

A Transition to Retirement pension is a type of superannuation/pension account designed for when you’re slowing down work but still able to build up your super before full retirement. It allows you to draw a tax-free pension whilst you are still working, reduce your tax, build your super and get some great benefits in that delicate and tumultuous time between full work and retirement.

How can I draw a pension whilst I’m still working?

TTR pensions allow you to start drawing down on your retirement savings which can be really useful in the phase where you cut down on your working hours but need to supplement your income.

As outlined in the ASIC Money Smart website, if you’ve reached your preservation age (between 55 and 60) and are still working, you can use a TTR strategy to:

• supplement your income if you reduce your work hours, or
• boost your super and save on tax while you keep working full time.

My payments seem really small compared to my wages I’d like to replace – how does that work?

Here’s a great example of how a TTR pension can utilise the tax benefits to your advantage. Say you are in the 39% tax bracket (including the Medicare levy). You could replace $16,390 of your salary by drawing out $10,000 from your TTR pension tax-free, and have no impact on your cash flow. By avoiding paying tax at your normal tax bracket, you are getting more bang for your buck when it comes to your take-home funds.

Are there other benefits?

Absolutely there are! We’d always suggest consulting an adviser to see if it’s right for your particular circumstances, as everyone is completely different. In general, TTR pensions can help provide additional cash flow whilst you are salary sacrificing, when you might be tight on cash flow otherwise. We’ll give you an example from our mates over at MLC who’ve crunched the numbers for us:

• Dominic (age 60) earns $160,000 a year and starts a TTR pension with $100,000. He draws a $7,076 pension each year. The additional tax-free cashflow allows Dominic to salary sacrifice $11,600 and remain in the same net cashflow position. In this scenario, Dominic’s personal tax saving would be $4,524 and net (after super contributions tax) benefit would be $2,784.

There are also scenarios that can allow you to complete a recontribution strategy if you’d like to maximise your tax-free component of your super benefit, which can be really helpful to your beneficiaries.

Let me know if I can help.

If you aren’t sure where to start then reach out by booking a time HERE. We can discuss your situation and see if a TTR pension may be appropriate for you.

If you haven’t already, you can also read our article on the value financial adviser add HERE or download our helpful guide.