Retirement doesn’t have to be a hard stop. Many Australians would rather wind down gradually — dropping to part-time hours in their 60s while topping up their income from super. The transition to retirement (TTR) rules are designed for exactly this: they let you draw a pension from your super while you’re still working, without having to fully retire first. Used well, a TTR strategy can smooth your income and, in some cases, boost your super and cut your tax at the same time.
This guide explains how TTR works and who it suits. It’s a cluster under our retirement planning pillar, and it leans heavily on two super concepts: preservation age and salary sacrifice.
What a TTR pension is
A TTR pension is a special type of account-based pension you can start once you reach your preservation age — now 60 for everyone (anyone born on or after 1 July 1964). Unlike a normal retirement-phase pension, you can start a TTR pension while you’re still working, without meeting a full condition of release.
Because you haven’t retired, TTR comes with restrictions:
- Income stream only. You can only draw regular pension payments, not lump sums, until you retire or turn 65.
- Minimum and maximum drawdown. You must withdraw at least 4% and no more than 10% of the account balance each financial year.
- Not (yet) in retirement phase. Earnings on a TTR pension are generally taxed like accumulation (up to 15%), not tax-free, until you meet a condition of release and it converts.
Once you fully retire or turn 65, a TTR pension converts to a standard account-based pension: the maximum drawdown limit disappears and the underlying earnings become tax-free.
Preservation age is the starting gun
You can’t start a TTR pension until you reach preservation age. That used to vary by birth year, but the transition is complete: preservation age is now 60 for everyone. Knowing you’ve reached it is the trigger for the whole strategy — see preservation age explained for the detail on conditions of release.
The tax angle
Tax is where TTR gets interesting, and the rules changed at age 60:
- Age 60 and over. TTR pension payments are tax-free in your hands. This is the sweet spot for the strategy.
- Under 60. Since preservation age is now 60, this scenario no longer arises for new TTR pensions — you can’t start one before 60.
The tax-free payments from 60 are what make the classic “TTR plus salary sacrifice” strategy work.
The classic TTR strategy: salary sacrifice + top-up
The most common way to use TTR is alongside salary sacrifice:
- You salary sacrifice more of your wage into super, where it’s taxed at just 15% (up to the concessional cap — $32,500 in 2026-27) rather than at your marginal rate.
- Your take-home pay drops as a result.
- You start a TTR pension and draw tax-free payments to replace the lost take-home pay.
The net effect for someone 60+ can be to maintain the same after-tax income while shifting money from a higher marginal tax rate into the 15% super environment — potentially growing your super and reducing your overall tax. The concessional cap rising to $32,500 from 1 July 2026 gives a little more room for this.
A worked sketch
Someone aged 61 earning $110,000 might salary sacrifice an extra, say, $20,000 into super (taxed at 15% instead of their marginal rate), then draw a matching tax-free TTR pension to keep their household budget intact. The tax saved on the sacrificed amount, net of the 15% contributions tax, is the benefit — while the money stays working inside super.
Who TTR suits
- Workers aged 60+ who want to reduce their hours without a big drop in income.
- People 60+ still working full-time who want to boost super and save tax via the salary-sacrifice strategy.
- Anyone easing gradually from full-time work into retirement.
It’s less useful if you have little scope to salary sacrifice, if drawing on super now would meaningfully dent your final balance, or if your situation is simple enough that a straightforward retirement plan does the job.
Benefits and drawbacks
Benefits
- Flexibility to cut back work while maintaining income.
- Tax efficiency from 60, both on tax-free payments and via salary sacrifice.
- A smoother transition into retirement, financially and emotionally.
Drawbacks
- Drawing super earlier can slow its growth if withdrawals outpace contributions and returns.
- Complexity — the numbers need to stack up for your situation, and TTR earnings aren’t tax-free until the pension converts.
- Withdrawal limits — 4% to 10% a year, and no lump sums until you retire or turn 65.
Steps to set one up
- Confirm you’ve reached preservation age (60) and are eligible to start a TTR pension.
- Assess your finances — super balance, income needs and how much you can sacrifice.
- Contact your super fund to open the TTR pension and understand fees and drawdown limits.
- Review annually, or whenever your hours, income or the rules change.
TTR to reduce work hours, not just save tax
The salary-sacrifice angle gets the most attention, but the original purpose of TTR is simpler: to let you cut back your hours without cutting your income. If you drop from full-time to three days a week in your early 60s, your wage falls — and a TTR pension can top the difference back up from your own super.
Used this way, TTR is less about tax arbitrage and more about lifestyle. It lets you test what semi-retirement feels like, ease the physical or mental load of full-time work, and stay connected to your workplace and colleagues while gradually stepping back. The trade-off is that you’re drawing down super earlier than you otherwise would, so it’s worth modelling the effect on your final balance. For many people the reduced stress and smoother transition are worth a modestly smaller nest egg — but that’s a personal call.
How TTR interacts with the rest of your plan
A TTR strategy doesn’t sit in isolation. Because it draws on super, it ties directly into your contribution caps — the salary-sacrifice leg only works within the $32,500 concessional cap for 2026-27, and pushing beyond it triggers extra tax. It also feeds into your eventual account-based pension, since a TTR pension simply converts to one when you fully retire or turn 65. And for the bigger picture — how TTR fits alongside the Age Pension and your overall income target — the retirement planning pillar ties it all together. Getting these pieces to work in concert is what turns TTR from a clever tax trick into a genuine transition plan.
Common questions
What happens when I retire or turn 65? Your TTR pension converts to a standard account-based pension — the maximum drawdown limit is removed and earnings become tax-free.
Can I still contribute while on a TTR pension? Yes, you can keep making concessional and non-concessional contributions within the caps.
Is TTR right for everyone? No — it depends on your age, balance, income and goals. Model it before committing.
Related reading
Fit TTR into your broader plan via the retirement planning pillar. The two rules that power it are preservation age and salary sacrifice, and once you fully retire it becomes an account-based pension.
This article is general information only and not financial or tax advice; consider your own circumstances and speak to a licensed adviser or the ATO before acting.