A transition to retirement pension – also known as a TTR pension – is an income stream that can be paid from a SMSF member account while the member is still working. They will need to have reached their preservation age, which is between age 55 and age 60, depending on the year they were born.
As the name suggests, this type of pension is where a SMSF member is in a ‘transition phase’ – not quite at full retirement yet, but perhaps not far off it, and perhaps still working part time and needs to top up their income to meet their living expenses with some income from their super fund.
Now, there are just a couple of points to make about the TTR pension.
Firstly, the TTR pension is actually a type of “account based pension” (ABP), whereby they share many similar characteristics as a regular ABP.
That is, it is an income stream that a member receives from their SMSF cash account over to their individual bank account for them to use for whatever purpose they wish, and there is a minimum amount they need to take out each year – which is currently 4% for those under 65.
Once a member is age 60 or over, the pension payments they receive are tax free in their hands. If they are between their preservation age but under age 60, the pension is still tax advantaged. The tax free component of the pension is tax free, and the taxable component is taxed at the members marginal tax rate, but it comes with a 15% tax rebate.
There are also three major differences with a TTR pension to a regular account based pension:
Note that once the member retires or fully satisfies another condition of release, they can convert this to a normal account based pension, and can have access to all of it’s flexibility such as taking out lump sums, no maximum income limit, and no capital gains or income tax on the earnings within the fund itself.