A transition to retirement (TTR) pension is a halfway house: from age 60 you can start drawing an income from your super while you keep working. It’s commonly used in two very different ways — easing into part-time work without a sharp income drop, or running a salary-sacrifice strategy that cuts your tax while your take-home pay stays level. This guide explains the 2026 rules (who can start one, the 4% minimum and 10% maximum drawdown, and the 15% earnings tax), the tax treatment of TTR payments, and the traps that catch people out.
All rules below reflect the 2025-26 position published by the ATO. Preservation age is now 60 for everyone — the phase-in period for people born before July 1964 has concluded. Model your numbers with our super calculator and salary sacrifice calculator.
What a TTR pension is (and isn’t)
A TTR pension is an account-based income stream you start before meeting a full condition of release. It doesn’t replace your job and it doesn’t mean you’ve retired. In fact, you don’t even need to cut your hours — you can start one while working full-time. Its job is to act as a bridge: giving you partial access to your super in your early sixties while the bulk of the balance keeps growing.
Two conditions, and only two, are required to start:
- You’ve reached preservation age — 60 for everyone born on or after 1 July 1964.
- You’re still working (or at least, you haven’t met a full condition of release such as retiring or turning 65).
The rules: how much you can draw
Each financial year you must draw between a floor and a ceiling, calculated on your account balance at 1 July (or when the pension starts):
| Rule | Amount |
|---|---|
| Minimum annual drawdown | 4% of account balance |
| Maximum annual drawdown | 10% of account balance |
The 10% ceiling is deliberate: it stops you draining your super before you’ve actually retired. Once you turn 65 or meet a full condition of release (retiring, ceasing employment after 60), your TTR converts to a normal retirement-phase account-based pension — the ceiling disappears and only the age-based minimum applies (5% at 65-74, rising to 14% at 95+).
Two more structural rules matter: the pension is non-commutable while you’re in TTR phase, meaning you can’t convert it into a cash lump sum — it must be paid as regular income payments. And if you start mid-year, the first year’s minimum is pro-rated for the days remaining.
Tax on TTR pension payments
Payments are taxed according to your age and the type of fund:
- From age 60, payments from a taxed fund are tax-free — the same as a full retirement-phase pension.
- Between preservation age and 59, the taxable component is assessable at your marginal tax rate, with a 15% tax offset available (this matters only in rare cases now that preservation age is 60).
Since preservation age is now 60 for everyone in planning, nearly all TTR payments in 2026 are received tax-free. But there’s an important tax wrinkle inside the fund itself: earnings on assets supporting a TTR pension are taxed at 15% — the accumulation-phase rate — not the 0% retirement-phase rate. Your pension doesn’t move into the tax-free retirement phase until you meet a full condition of release. For SMSFs running both TTR and accumulation accounts, this means careful segregation of assets.
Strategy 1: work less, keep your income steady
This is the lifestyle version. Drop to three or four days a week and use TTR pension payments to fill the wage gap — its goal is time, not tax.
Example. David, 61, earns $110,000 working full-time. He drops to four days a week, cutting his salary to $88,000. His super balance is $480,000, so he starts a TTR pension drawing 8% — $38,400 a year in tax-free pension payments. His total cash income is $126,400 (more than his old full-time wage, though $16,400 of the $38,400 top-up comes from drawing down his balance). He meets the 4% minimum ($19,200) comfortably and stays well under the 10% maximum ($48,000). He keeps working, but every weekend is now three days long.
Strategy 2: work the same, pay less tax
This is the wealth version. Keep your full-time hours, salary sacrifice part of your wage into super (within the $30,000 concessional contributions cap for 2025-26), and replace the sacrificed salary with tax-free TTR pension payments. Money that would have been taxed at your marginal rate goes into super at the concessional 15% rate instead — while your take-home stays level.
Example. Priya, 60, earns $140,000. She salary sacrifices $20,000 into super and starts a TTR pension on her $500,000 balance, drawing 6% ($30,000 a year, tax-free). The mechanics:
| Item | Without strategy | With TTR + salary sacrifice |
|---|---|---|
| Taxable salary | $140,000 | $120,000 |
| Income tax + Medicare on salary (2025-26 rates) | $35,938 | $29,188 |
| Tax on $20,000 salary sacrifice (15% in fund) | — | $3,000 |
| Total tax | $35,938 | $32,188 |
| TTR pension payments (tax-free) | — | $30,000 |
| Take-home cash | $104,062 | $120,812 |
Priya saves roughly $3,750 a year in tax and her take-home rises by $16,750 — while $20,000 extra lands in her super. Note the arithmetic: the $20,000 she sacrificed would have been taxed at 32-39% (her top marginal rates plus Medicare), but inside super it’s taxed at just 15%. The catch: her $30,000 pension drawdown exceeds the $20,000 she contributed, so her super balance is slowly shrinking even as she contributes. This strategy works best when the tax saving clearly outweighs the net drawdown — typically for higher earners with large balances and many years until full retirement.
The traps
- The 15% earnings tax never sleeps. The biggest misconception is that TTR money grows tax-free like a retirement pension. It doesn’t — earnings are taxed at 15% until a full condition of release. Over a decade, that gap is meaningful.
- The 10% ceiling bites in emergencies. If you need more than 10% of the balance in a year — say for medical costs — a TTR pension won’t give it to you, and it can’t be commuted to a lump sum. Keep emergency reserves outside super.
- The concessional cap is hard. Salary sacrifice plus your employer’s 12% SG must stay within the $30,000 cap for 2025-26 (scheduled to rise to $32,500 in 2026-27). Breach it and the excess is taxed at your marginal rate with interest — defeating the purpose. If your total super balance is under $500,000, you can carry forward unused cap amounts from up to five prior years.
- Division 293 adds up. If your income plus concessional contributions exceeds $250,000, an extra 15% tax applies to some or all of your concessional contributions — the strategy’s benefit halves at that point.
- Division 296 from July 2026. The new 15% tax on earnings attributable to super balances above $3 million applies from 1 July 2026. Very high-balance members running TTR strategies should factor it into the plan.
- Centrelink treatment. TTR pension balances count toward the Age Pension assets test at preservation age, and deemed income rules apply — unlike some older allocated pensions, TTR pensions don’t reduce your assessable assets.
When does a TTR pension end?
Your TTR doesn’t expire — it converts. The moment you meet a full condition of release (turning 65, retiring after preservation age, or ceasing an employment arrangement after 60), the pension automatically becomes a retirement-phase account-based pension: the 10% maximum vanishes, earnings become tax-free (up to the $2 million transfer balance cap for 2025-26), and the age-based minimum drawdown applies. Tell your fund when your circumstances change — the tax treatment depends on the fund knowing your status.
Frequently asked questions
Can I start a TTR pension at 60 while working full-time?
Yes. There is no requirement to reduce your hours — starting one on full-time wages is the standard setup for the salary-sacrifice strategy.
How much can I withdraw from a TTR pension per year?
Between 4% and 10% of the account balance each financial year. On a $400,000 balance that’s $16,000 to $40,000.
Are TTR pension payments taxed?
From age 60, payments from a taxed fund are tax-free. Earnings inside the fund supporting the pension are taxed at 15% until you meet a full condition of release.
Can I take a lump sum from my TTR pension?
No. While in TTR phase the pension is non-commutable — only regular income payments, up to 10% a year. Lump sums become available when it converts to retirement phase.
Does a TTR pension affect the Age Pension?
The balance counts in the Age Pension assets test once you reach preservation age, and deemed income from the pension counts in the income test. Get advice before combining strategies near Age Pension age.
Is the TTR strategy worth it in 2026?
For earners on 30%+ marginal rates with balances above roughly $300,000, the salary-sacrifice version typically pays for itself through tax savings. Below that, or if you’d be drawing down the balance faster than you contribute, the lifestyle version may serve you better than the tax version.
Conclusion
A transition to retirement pension is one of the few genuine win-wins in the Australian tax system — but only when the rules are respected. The formula is simple: start at 60, stay between the 4% floor and 10% ceiling, keep salary sacrifice inside the $30,000 concessional cap, and remember the 15% earnings tax until full retirement. Used well, it can fund a gentler glide path into retirement or shave thousands off your annual tax bill.
Before you start, run the numbers: our super calculator projects your balance and pension income, the salary sacrifice calculator shows your tax saving, and the income tax calculator keeps the whole picture honest. And because TTR interacts with contribution caps, Centrelink and the new Division 296 rules, a licensed adviser is worth the fee for balances that matter.