Taking up a pension under the Transition to Retirement option allows you to access some of your super savings before you permanently retire. Depending on your circumstances, this option may help you ease your way into retirement by giving you the opportunity to:
supplement your income if you cut down your working hours
start receiving an income if you're not working at all
reduce the amount of tax you pay
potentially increase your retirement savings.
To be able to take up a pension under the Transition to Retirement option you need to be at least 55 years of age (which is known as "Preservation age" which is set by law at which time you can begin accessing your super) or older.
With a regular pension payment from your superannuation savings you are subject to minimum and maximum limits on the amount you can withdraw as a payment; between the age of 55-64 the minimum is 4% and the maximum amount is 10% of your account balance.
EXAMPLE: at 55 years of age
Full-time work| Annual income before tax | $60,000 |
| Annual income after tax & medicare levy | $47,100 |
| Annual expenses | $47,100 |
You need all your after-tax income to live but, leading up to retirement, you really want to cut down the number of days you work. You would like to work four days instead of five
Part-time work (4 days)
| Annual income before tax | $48,000 |
| Annual income after tax | $38,880 |
| Annual expenses | $47,100 |
| Shortfall | $ 8,300 |
Accessing your super as a regular pension payment will help you meet your shortfall. If you had a **pension account balance of $ 150,000 (from taxed sources). You'd be able to take pension payments each year of between $ 6,000 (your minimum) and $ 15,000 (your maximum) and you'd receive a tax rebate on the payments.
Lets have a look at the difference it would make:
| Annual income before tax | $48,000 |
| Pension payments from super ** | $10,000 |
| Taxable income | $58,000 |
| Tax and Medicare Levy | $12,270 |
| Less tax rebate on pension payments | $ 1,500 |
| Net tax payable | $10,770 |
| Annual income after tax | $47,230 |
| Annual expenses | $47,230 |
| Surplus | $130 + |
Also, whilst still working full-time between the age of 55 and 60 the benefit of Salary Sacrificing is that you are only taxed at 15% going into your super, and the balance of your taxable income will be taxed at a lower rate, therefore boosting your superannuation savings and lowering the amount of tax you pay, you transfer your superannuation account into an Allocated Pension account, and withdraw from this account to supplement your income back to the required amount needed to meet your annual expenses. When you have reached age 60 you will not pay any further tax on your superannuation savings.