A transition to retirement (TTR) income stream lets you draw a regular pension from your super once you reach preservation age, while you keep working. Each financial year you must take at least 4% and no more than 10% of the account balance, and you generally cannot take lump sums.
People use it in two ways. Some cut back to part-time hours and use the pension to top up their pay. Others keep working full-time, salary sacrifice more into super and use the pension to replace the take-home pay they gave up.
This guide covers the 2026-27 rules, how the tax works after age 60, and a worked example with every number shown so you can see whether the strategy is worth it for you.
Key takeaways
- You can start a TTR income stream once you reach preservation age, which is 60 for anyone born on or after 1 July 1964.
- Payments must be between 4% and 10% of your account balance each year, and the 10% cap is not reduced if you start part-way through the year.
- From age 60, TTR payments from a taxed super fund are tax-free.
- Fund earnings on a TTR are still taxed at up to 15% until you turn 65 or meet a full condition of release, such as retiring.
- The concessional contributions cap rises to $32,500 in 2026-27, which gives more room for a TTR and salary sacrifice strategy.
Transition to retirement at a glance (2026-27)
| Rule | 2026-27 position |
|---|---|
| Who can start one | People who have reached preservation age (60 if born on or after 1 July 1964) |
| Minimum payment | 4% of the account balance each year (under 65) |
| Maximum payment | 10% of the account balance on 1 July, or on the start date in the first year |
| Lump sums | Generally not allowed, except from unrestricted non-preserved benefits |
| Tax on payments from age 60 | Nil, for a taxed super fund |
| Tax on fund earnings | Up to 15% until the pension enters the retirement phase |
| Concessional contributions cap | $32,500 (up from $30,000 in 2025-26) |
| Super guarantee rate | 12% |
| General transfer balance cap | $2.1 million (up from $2 million in 2025-26) |
What is a transition to retirement income stream?
A TTR income stream is an account-based pension you start with your own super while you are still working. The ATO describes it as a way to reduce your working hours without reducing your income. You move some or all of your super into a pension account and the fund pays you a regular amount, for example fortnightly or monthly.
Your employer keeps paying super guarantee contributions while you work, so a TTR does not stop your super from growing. It just starts paying you an income from it earlier than full retirement.
When can you start a transition to retirement pension?
You need to have reached preservation age. Under the ATO preservation age table, it is 60 for anyone born on or after 1 July 1964. Anyone born before that date has already reached their preservation age, so in practice the earliest age to start a new TTR is now 60.
You do not need to cut your hours or change jobs. You can keep working full-time and still start a TTR pension.
How much can you take out each year?
While you are under 65 and have not met a full condition of release, the ATO says you must receive between 4% and 10% of your account balance each financial year.
- Minimum: 4% of the balance for people under 65.
- Maximum: 10% of the balance on 1 July, or on the day the pension starts in the first year.
- First year: the 10% maximum is not reduced if the pension starts part-way through the financial year.
Watch out
You cannot take more than 10% in a year, and you generally cannot take a lump sum out of a TTR. The only exceptions are unrestricted non-preserved benefits and a few special payments such as a family law split or a release authority. If you need a big amount for a car or a home deposit, a TTR is the wrong tool.
How is a transition to retirement pension taxed?
Tax on the payments you receive
If you are 60 or older and the pension is paid from a taxed super fund, the payments are tax-free. The ATO’s tax on super benefits table shows “no tax” on the taxed element of an income stream from age 60.
Tax inside the fund
This is the part people often miss. Until your TTR moves into the retirement phase, the earnings on the assets that support it are taxed at up to 15%, the same as an ordinary accumulation account. You only get tax-free earnings once the pension enters the retirement phase.
When does a TTR move into the retirement phase?
- When you turn 65, automatically.
- Earlier, if you tell your fund you have met a full condition of release, such as retirement, permanent incapacity or a terminal medical condition.
At that point the 10% maximum and the lump sum restrictions stop, earnings become tax-free and the balance counts towards your transfer balance cap. The general cap is $2.1 million in 2026-27.
Worked example: does a TTR and salary sacrifice strategy pay off?
Here is how the numbers work for someone who keeps working full-time in 2026-27. It compares the two options most people are choosing between: carry on as normal, or start a TTR pension and salary sacrifice up to the concessional cap.
The facts
- Priya is 61 and works full-time on a salary of $90,000.
- Her employer pays super guarantee of 12%, which is $10,800.
- She has $400,000 in super and no unused concessional cap amounts carried forward.
- She has no other income and no deductions, and she does not pay the Medicare levy surcharge.
- Tax is worked out on the 2026-27 resident tax rates plus the 2% Medicare levy.
Option 1: no TTR, no salary sacrifice
- Taxable income: $90,000
- Income tax: $4,020 + 30% x ($90,000 – $45,000) = $4,020 + $13,500 = $17,520
- Medicare levy: 2% x $90,000 = $1,800
- Take-home pay: $90,000 – $17,520 – $1,800 = $70,680
- Super: $10,800 employer contribution – 15% contributions tax of $1,620 = $9,180 added to super
Option 2: TTR pension plus salary sacrifice
Priya’s room under the $32,500 concessional contributions cap is $32,500 – $10,800 = $21,700, so she salary sacrifices $21,700. Salary sacrificed contributions are taxed at 15% in the fund. She starts a TTR pension and takes the 4% minimum, which is 4% x $400,000 = $16,000. The maximum would be $40,000.
- Taxable income: $90,000 – $21,700 = $68,300
- Income tax: $4,020 + 30% x ($68,300 – $45,000) = $4,020 + $6,990 = $11,010
- Medicare levy: 2% x $68,300 = $1,366
- Take-home salary: $68,300 – $11,010 – $1,366 = $55,924
- Plus tax-free TTR payments: $16,000
- Total take-home: $55,924 + $16,000 = $71,924
- Super in: $32,500 – 15% contributions tax of $4,875 = $27,625
- Super out: $16,000 TTR payments
- Net added to super: $27,625 – $16,000 = $11,625
The result
| Option 1: no TTR | Option 2: TTR + salary sacrifice | Difference | |
|---|---|---|---|
| Take-home income | $70,680 | $71,924 | +$1,244 |
| Net added to super | $9,180 | $11,625 | +$2,445 |
| Total better off | +$3,689 |
The $3,689 gain is the tax saving. Priya’s personal tax and Medicare drop by $19,320 – $12,376 = $6,944, while extra contributions tax is $4,875 – $1,620 = $3,255. That leaves $6,944 – $3,255 = $3,689.
Tip
The benefit comes from the gap between your marginal tax rate and the 15% contributions tax. On lower incomes, or if you are already near the cap, the gain shrinks and may not cover any fund fees for running a pension account. Use our income tax calculator to check your own marginal rate first.
Should you run a TTR through an SMSF or a retail fund?
Most industry and retail funds offer a TTR pension, and they handle the payment limits and paperwork for you. A self-managed super fund can also pay one, but the trustees must track the 4% and 10% limits, report the pension correctly and keep the fund compliant.
A TTR on its own is not a good reason to set up an SMSF. If you are already reviewing your fund, our guide to choosing a super fund covers what to compare.
What are the common TTR mistakes?
- Going over the cap. Contributions above the $32,500 concessional cap can mean extra tax. Your employer’s super guarantee counts towards it, so check payroll before you lock in a salary sacrifice amount.
- Drawing more than 10%. The maximum is a hard limit until you turn 65 or meet a full condition of release.
- Forgetting the 15% tax on earnings. A TTR does not give tax-free earnings while you are still working and under 65.
- Not telling the fund when you retire. If you retire before 65, the pension only moves into the retirement phase once you notify your fund.
- Running down your balance. Taking the maximum every year while cutting hours can leave less for full retirement.
- Ignoring Division 293. If your income plus concessional contributions is over $250,000, extra contributions tax applies. Our guide on Division 293 tax explains how it works.
Is a transition to retirement strategy right for you?
A TTR tends to suit you if you are 60 to 64, still working, have room under the concessional cap and pay tax above 15%. It also suits people who want to drop to part-time work without a big fall in income.
It is less useful if your income is low, if you need a lump sum, or if you plan to retire fully in the next year or so. In that case a retirement-phase pension may be simpler. Read more about salary sacrifice and other ways to contribute to super before you decide.
Frequently asked questions
Can I take a lump sum from a transition to retirement pension?
Generally no. While you are under 65 and still working, a TTR pension can only pay a regular income of 4% to 10% of the balance each year. The main exception is any unrestricted non-preserved money in the account, which can be taken as a lump sum.
What happens to my TTR pension when I turn 65?
It moves into the retirement phase automatically. The 10% maximum and the lump sum restrictions stop applying, earnings on the pension assets become tax-free and the balance counts towards your transfer balance cap.
Are transition to retirement payments taxed after age 60?
No, not if the pension is paid from a taxed super fund. From age 60, payments from a taxed fund are tax-free, although the fund still pays up to 15% tax on the earnings until the pension enters the retirement phase.
Does my employer still pay super if I start a TTR?
Yes. Starting a TTR pension does not change your employment, so your employer keeps paying super guarantee of 12% on your ordinary time earnings. Those contributions go into your accumulation account.
Does a TTR count towards the transfer balance cap?
Not while it is a transition to retirement pension. It only counts once it enters the retirement phase, when you turn 65 or tell your fund you have met a full condition of release. The general cap is $2.1 million in 2026-27.
Talk to specialist before it costs you
15-minute discovery call. No obligation, no jargon.
Talk to a registered tax agent
Want us to run the numbers for your salary, super balance and hours? Call Nanak Accountants & Associates on 1300 626 258. Our superannuation withdrawal support team can check your preservation age, payment limits and salary sacrifice settings, and our individual tax return service makes sure your TTR income is reported correctly. You can also contact our team to book a review.
This article is general information only and is not personal financial or tax advice. Information checked against ATO sources on 14 October 2026.
