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Transition To Retirement

What is transition to retirement?

In 2005 the Federal Government introduced legislation which made it easier for individuals aged 55 and over who are still working to access their preserved superannuation benefits by the introduction of an additional condition of release known as the transition to retirement condition of release. The Government’s aim is to provide individuals aged 55 and over with the opportunity to stay in the work force longer and ease into retirement.

How does transition to retirement work?

Those who intend to continue working may benefit from the establishment of a transition to retirement strategy which provides an opportunity for them to reduce their working hours and supplement their income by establishing a superannuation income stream such as a non-commutable account based pension using all, or a portion of their superannuation benefits.

Individuals may also boost their retirement savings in the years leading up to their permanent retirement by establishing a salary sacrifice agreement with their employer whereby they direct a portion of their pre-tax salary as additional contributions to superannuation. At the same time their income may be supplemented by a non-commutable account based pension.

The hardest thing for individuals to do is to work out how much pension income they need to take and how much they should salary sacrifice to ensure their income needs are met.

Taxation Advantages

Following the simpler super legislation effective 01/07/2007 and cuts to personal taxation rates, transition to retirement strategies are now even more tax effective.

This flexible combination of  reduced assessable income and a tax effective income stream provides an opportunity to build wealth more tax effectively and may also assist with other tax planning opportunities leading up to retirement.

Things you need to be aware of

The following restrictions apply to transition to retirement strategies:-

  • lump sum access to account based pensions is restricted until age 65, or the earlier of an individual satisfying a condition of release such as permanent retirement from the work force before age 60, or resigning from a position between 60 and 65 years of age.
  • Until age 65, the maximum pension amount allowable is restricted to a minimum of 4% and a maximum of 10% of the account balance as at the commencement date of the pension.
  • Until 30/6/2012, individuals aged 50 and over may contribute a maximum of $100,000 per annum to superannuation including employer SG contributions. After this date the indexed up standard threshold of $50,000 per annum will apply. 

Case Study

Graham has just turned 55 and is considering his future. His gross salary is $70,000 per annum and he requires $50,000 net per annum to meet his regular expenditure both now and in retirement. Graham has accrued superannuation benefits of $400,000 (100% taxable) and his employer currently contributes 9% SG ($6,300) per annum to superannuation on his behalf.

Graham would like to discuss the viability of establishing a transition to retirement strategy (TTR) as he is aware that he may not have sufficient monies invested in superannuation to support his long term income needs when he retires at age 65.

The following tables demonstrate the benefits of establishing TTR strategy.

Cash Flow – Year 1

 Do nothing

Establish a TTR

Gross Salary



Less Salary Sacrifice



Account Based Pension



Assessable Income



Tax Payable (inc 1.5% Medicare levy)



Less 15% Rebate



Net Tax Payable



Net Income



Overall Tax payable






Superannuation Contributions Tax

   $     945


Overall Tax payable



Projected Superannuation Benefits *



Year 10 (age 65)



* Assumptions

  • Salary indexed at 5%
  • Expenditure indexed at 2.7%.
  • Rate of return: 7.9%.


If Graham elects to establish TTR strategy his superannuation capital is forecast to grow to $1,090,288 at age 65 compared to $888,650 if he does nothing. He will also reduce his personal income and overall taxation liabilities along the way.  The overall tax savings in year 1 equate to $2,195.

An added bonus is that at age 60, Graham will pay no tax on his $20,000 pension income which means he will have more disposal income at his finger tips. At that time Graham may consider building up assets outside of the superannuation environment, or he could increase his level of salary sacrifice to further increase his wealth in a tax effective manner.

How to establish a transition to retirement strategy

Individuals should seek the advice of their Lifespan Financial Adviser to discuss their overall financial situation. This will ensure that a retirement planning strategy is tailored to their personal needs and objectives taking into account lifestyles issues, cash flow requirements, taxation issues and their existing asset base.


The material provided in this document is provided for information only and constitutes general financial product advice. It does not take into account your personal financial situation, objectives and needs. Consequently before acting upon the information in this brochure you should consider its appropriateness to your financial situation, objectives and needs.



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