Transition to Retirement Pension: 2026–27 Guide

A transition to retirement pension is an income stream you can start from super once you reach preservation age. For anyone newly becoming eligible now, that age is 60. You can keep working, including full time.

Each financial year the pension generally has to pay between 4 percent (the usual minimum under 65) and 10 percent of the relevant account balance. The strategy is useful only when it solves a specific cash-flow or contribution problem. Starting one because the option exists is rarely a good reason on its own.

If you want to see how a salary-sacrifice, reduced-hours or extra-income approach would look with your own figures, use the Transition to Retirement Calculator. It compares those three approaches using the 2026–27 concessional cap, Super Guarantee rate and drawdown limits.

The Australian Taxation Office sets out the formal rules here: ATO transition to retirement guidance

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FY2026–27 key figures

These are the figures this guide uses. They are the current settings, not personal advice.

• Starting age: 60 (preservation age for anyone newly becoming eligible)
• Minimum pension payment under 65: 4 percent of the relevant balance
• Maximum TTR pension payment: 10 percent of the relevant balance
• Concessional contributions cap: $32,500
• Super Guarantee rate: 12 percent
• Carry-forward concessional contributions: available only if total super balance was less than $500,000 at 30 June of the previous financial year. For FY2026–27 examples, that test date is 30 June 2026
• Division 293 threshold: $250,000
• General transfer balance cap from 1 July 2026: $2.1 million

A person's personal transfer balance cap can be lower than $2.1 million if they have already used retirement-phase capacity in earlier years. The general cap is the starting point, not a guarantee of the amount available to any one person.

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What problem is the TTR actually solving?

A TTR pension is a tool. It is worth considering when it is aimed at one of these problems:

• You want to reduce working hours and need another income source to support spending.
• You want to increase concessional super contributions (usually by salary sacrifice) without cutting household cash flow.
• You want to access some super income while you continue working.
• You are moving toward full retirement and want a structured income stream in place before you stop work.

If none of those apply, extra accounts, extra fees and a forced minimum withdrawal are usually a poor trade. Having no clear objective is itself a reason not to add the complexity.

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How a TTR pension is set up

You do not convert your whole super account into a TTR. You usually end up with two accounts.

Accumulation account. New employer Super Guarantee and voluntary contributions generally continue to land here. You cannot ordinarily contribute new money directly into the pension.

TTR pension account. Part of your existing super is used to start the pension. That account then pays you an income stream within the minimum and maximum rules.

A few practical setup points are easy to miss:

• Fund availability. Not every fund offers a TTR. Some require a minimum starting balance.
• Fees. Two accounts can mean two sets of administration fees. That cost needs to be in the comparison, not treated as a rounding error.
• Insurance. Cover held in accumulation can reduce or stop when money moves into a pension account. Check this before you move a large balance.
• Beneficiaries and account settings. Binding nominations, reversionary pensions and investment options do not always copy across automatically.

The pension is generally non-commutable while it remains a TTR, which means lump sums are restricted until a full condition of release applies.

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First-year pension mechanics

The relevant balance is not always the 1 July balance.

If the pension already existed at 1 July, the usual approach is:

• Use the account balance at 1 July.
• Use your age at 1 July to set the minimum percentage for that year.

If the pension starts part-way through a financial year, first-year calculations use commencement-day information rather than pretending the pension existed on 1 July. The minimum is generally pro-rated for the remaining days in the year.

There is a further first-year rule: if the pension commences on or after 1 June, no minimum pension payment is required for that first financial year.

The 10 percent maximum is a separate limit. It is not simply halved because you started in January.

A full explanation of both limits, including worked examples, is in TTR minimum and maximum drawdowns.

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A complete salary-sacrifice example

This example is illustrative. It uses the 2026–27 resident tax scales including the 2 percent Medicare levy, a 15 percent contributions tax, and no Division 293. It is not personal advice.

Assumptions

• Age 61, continuing to work
• Gross salary: $120,000
• Employer Super Guarantee at 12 percent: $14,400
• Concessional cap: $32,500
• Remaining concessional cap room after SG: $18,100
• Proposed extra salary sacrifice: $15,000
• Super already in place to start the TTR: $500,000
• Extra administration cost of running a pension account: $180 a year
• Pension payments are tax-free in the member's hands because the person is 60 or over and the fund is a taxed fund

Without a TTR

• Income tax and Medicare on $120,000: $28,920
• Take-home pay: $91,080
• Super Guarantee after 15 percent contributions tax: $12,240

With salary sacrifice and a TTR

• Taxable salary falls to $105,000
• Income tax and Medicare on $105,000: $24,120
• Take-home pay from salary: $80,880
• Cash-flow reduction before the pension: $10,200
• Contributions tax on the $15,000 salary sacrifice: $2,250
• Net extra amount reaching super from the sacrifice: $12,750

The pension then needs to pay $10,200 to replace the take-home reduction. That sits between the 4 percent minimum of $20,000 and the 10 percent maximum of $50,000 on a $500,000 balance, so the 4 percent minimum still has to be paid. In this example the pension therefore pays $20,000, not $10,200.

That is the part many illustrations skip. The minimum can force a larger withdrawal than the cash-flow gap.

Comparison after one year, ignoring investment returns

• Take-home pay with TTR: $80,880 salary + $20,000 pension − $180 extra fee = $100,700
• That is $9,620 more cash in hand than the $91,080 baseline, because the 4 percent minimum overshoots the $10,200 gap
• Extra concessional money into super: $12,750
• Pension drawn from super: $20,000
• Net movement in super from the extra contribution and the pension: −$7,250, before considering that SG continues in both scenarios

The strategy improved cash flow because the minimum withdrawal was larger than the salary-sacrifice gap. It did not grow super in this one-year snapshot. If the aim was to increase retirement savings, a smaller TTR balance (so the 4 percent minimum is closer to $10,200) would be the comparison to run, not a $500,000 pension paying a $20,000 minimum.

That is why the calculator exists. It lets you change the salary, the sacrifice and the starting balance rather than assuming any one structure is an improvement.

Model this with the Transition to Retirement Calculator

A longer explanation of contribution caps, carry-forward room and Division 293 sits in how salary sacrifice works with a TTR.

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A reduced-hours example

This one is simpler, and it is closer to the original purpose of the rules.

Assumptions

• Age 62
• Current salary for a five-day week: $90,000
• Proposed three-day week: $54,000
• Super used to start the TTR: $500,000
• Employer Super Guarantee continues at 12 percent of actual ordinary time earnings

Take-home pay on $90,000 is about $70,680 after income tax and Medicare. Take-home pay on $54,000 is about $46,200. The gap is about $24,480.

On a $500,000 TTR, the 4 percent minimum is $20,000 and the 10 percent maximum is $50,000. A pension of $24,480 sits inside that range, so the person could replace most of the lost take-home pay while working fewer days. Super Guarantee would continue on the reduced salary ($6,480 rather than $10,800).

The trade-off is obvious once it is written down. You are spending some of the super you would otherwise have left invested, in exchange for working less now. That can be a reasonable retirement-planning choice. It is not a tax trick.

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Can you work full time with a TTR pension?

Yes. Reducing hours is not an eligibility requirement.

Once you have reached preservation age 60, you can start or continue a TTR pension while remaining in full-time employment. Your employer Super Guarantee continues where you are eligible. Those contributions still go into accumulation, not into the pension.

A full-time worker might use a TTR alongside increased concessional contributions, so that salary sacrifice does not cut household spending. Full-time work does not lift the 4 percent and 10 percent payment limits, and it does not make fund earnings tax-free.

The relevant question is not whether you are already under the concessional cap. Being under the cap is often the starting point, because it means there is still contribution capacity. The real test is whether that capacity, the pension payment required, the extra fees and the time you will keep the structure in place produce a worthwhile net outcome.

If they do not, keep working and leave the super in accumulation.

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Transition to retirement disadvantages and when it can backfire

A TTR can reduce your super, add cost, or create work for very little benefit. The usual ways it backfires are practical rather than exotic.

Extra administration and fees. Two accounts can mean two administration fees, extra statements and more investment options to keep aligned. On a modest balance, that drag can absorb the tax difference the strategy was meant to capture.

Forced minimum withdrawals. You cannot start a TTR and then draw nothing. The minimum has to be paid each year (except in the limited first-year cases described above). If you only needed a small cash-flow top-up, the minimum can pull out more capital than you wanted.

Using the pension simply to spend more. Drawing super while you are still earning, without a matching contribution or a planned hours reduction, brings consumption forward. The money that leaves the pension is no longer invested. Over several years that is not a small effect. A balance that is $20,000 lower, earning a net 5 percent, is about $1,000 less growth in the following year, and the gap widens from there.

Insufficient concessional contribution capacity. If Super Guarantee already uses most of the $32,500 cap, there may be little room left for salary sacrifice. Carry-forward unused cap amounts are available only if your total super balance was under $500,000 at the previous 30 June. Without contribution capacity, the “pay less tax on extra super” version of the strategy has nothing to work with.

A short time horizon. Setting up two accounts, checking insurance and paying extra fees for a strategy that will run for six months is rarely worth the effort, especially if you are close to 65 anyway.

Insurance consequences. Death, TPD or income-protection cover inside super can change when money leaves accumulation. That is not a paperwork footnote. It can be the most expensive surprise in the whole exercise.

Government-benefit implications. Pension payments can affect means-tested entitlements. The detail depends on the payment and the person's other income and assets. It needs a specific check rather than a general assumption that super income is ignored.

Complexity without a measurable benefit. If you cannot say, in dollars, what the structure is meant to improve, it is usually better left alone.

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Tax on a TTR pension

There are two different tax questions, and mixing them up is the usual source of confusion.

Tax on earnings inside the fund. While the TTR is outside retirement phase, taxable fund earnings can be taxed at up to 15 percent. That is not the same as saying every capital gain is taxed at 15 percent. Super funds can apply a one-third CGT discount to eligible gains on assets held for at least 12 months, which can produce a lower effective rate on those gains.

Tax on pension payments to you. From age 60 in a taxed super fund, TTR pension payments are generally tax-free in your hands. The mix of tax-free and taxable components is set when the pension starts.

A TTR does not count toward the transfer balance cap until it moves into retirement phase.

The dedicated explanation is tax on a transition to retirement pension.

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What happens at retirement and at age 65

A TTR is not in retirement phase just because you have started it.

It moves into retirement phase when a relevant condition of release with nil cashing restrictions applies. Turning 65 does this automatically. The 10 percent maximum then falls away, the pension counts toward your transfer balance account, and earnings on supporting assets may become exempt current pension income if the fund claims that exemption.

The general transfer balance cap is $2.1 million from 1 July 2026. Your personal transfer balance cap may be different, and is often lower, if you have already had money in retirement phase.

For other conditions of release, such as retirement after preservation age, do not assume the pension changes by itself. The fund or pension provider generally needs to be told that the condition has been met.

The age-65 rules, including how the minimum percentage is set for the year you turn 65, are in what happens to a TTR at age 65. The comparison with a standard retirement-phase pension is in TTR vs account based pension.

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What I check before using a TTR strategy

When someone asks me whether a TTR is worth doing, I am usually trying to answer a short list of practical questions.

What problem are we actually solving? Hours, cash flow, extra concessional contributions, or something else?

How much concessional cap space is left after Super Guarantee, and does the $500,000 total super balance test open any carry-forward room?

What happens to take-home pay if we salary-sacrifice the amount we are discussing?

What pension payment is then required, and is that payment being driven by the cash-flow gap or by the 4 percent minimum?

What extra fees appear once a second account is opened?

What happens to any insurance in super when money moves across?

How many years is this structure likely to run, and what is the expected benefit after costs and tax over that period?

If those questions do not produce a clear, measurable improvement, I leave the money in accumulation.

If you want to test the same questions with your own salary and balance, start with the Transition to Retirement Calculator. If you want that modelling done in the context of a broader retirement plan, I can help through my retirement planning service.

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FAQs

What is a transition to retirement pension?

A transition to retirement pension is an income stream you can start from super once you reach preservation age, currently 60 for anyone newly becoming eligible. It allows limited withdrawals while you continue working.

What is the transition to retirement age in Australia?

Anyone newly becoming eligible for a TTR pension now must have reached preservation age 60. Older preservation ages of 55 to 59 applied only to earlier date-of-birth cohorts.

Are transition to retirement payments tax free?

From age 60 in a taxed super fund, TTR pension payments are generally tax free. Tax treatment still depends on the tax-free and taxable components of the pension and on whether the fund is a taxed fund.

Are earnings in a TTR tax free?

No. While the TTR remains outside retirement phase, taxable fund earnings can be taxed at up to 15 percent. Eligible discounted capital gains can produce a lower effective rate.

Can I stop a transition to retirement pension?

Yes, subject to fund rules and any minimum payment that still needs to be met for that financial year.