A Transition to Retirement (TTR) strategy allows Australians who have reached preservation age (60 for most people) to access up to 10% of their superannuation balance per year as a pension payment while continuing to work without needing to fully retire. The primary financial benefit in 2026 is the salary sacrifice tax arbitrage: you increase concessional super contributions at 15% tax while drawing TTR pension income tax-free (after age 60) to replace the after-tax income given up through sacrifice. However, the attractiveness of TTR was significantly reduced by changes effective 1 July 2017, when fund earnings in TTR phase were changed from 0% to 15% tax the same rate as accumulation phase. TTR is still useful for specific situations, but is no longer the broad tax-saving strategy it once was.
This guide explains exactly how TTR works in 2026, the two main ways Australians use it, the specific tax saving the salary sacrifice strategy generates with real numbers, the key limitations to understand before starting, and when TTR stops being the right strategy and full retirement begins.
What Is a Transition to Retirement Income Stream?
A Transition to Retirement income stream (TRIS) also called a TTR pension is a special type of super income stream that can be started once you’ve reached your preservation age without needing to retire. Key structural features:
- Minimum drawdown: 4% of the account balance per financial year (same as an account-based pension)
- Maximum drawdown: 10% of the account balance per financial year you cannot draw more than 10% while in TTR phase
- Commutation restriction: While in TTR phase, you generally cannot take a lump sum from the TRIS you can only receive regular income payments within the 4–10% band
- Tax on earnings: 15% (since 1 July 2017) same as your accumulation account. This compares with 0% for a full retirement income stream (account-based pension in retirement phase)
- Tax on payments: Tax-free after age 60. For those aged 55–59 on a TRIS, a 15% offset applies on the taxable component
- What converts it to full pension phase: Meeting a condition of release typically fully retiring after age 60, turning 65, or meeting another condition. Once this happens, the TRIS automatically converts to a standard account-based pension with 0% earnings tax and no 10% cap
The ATO’s guidance on transition to retirement income streams covers the technical rules in detail, including the notification requirements when a TTR converts to full pension phase.
The Critical 2017 Rule Change: Why TTR Is Less Attractive Now
Understanding this context is essential for anyone who read about TTR strategies more than a few years ago or received advice pre-2017 and is wondering why the numbers sound different now.
Before 1 July 2017, earnings within a TTR income stream were taxed at 0% the same concessional rate as a full retirement income stream. This meant that simply moving your super balance into TTR phase (while continuing to work) produced immediate, material tax savings on investment earnings, independent of any salary sacrifice strategy.
From 1 July 2017, the tax on earnings within a TTR fund was changed to 15% the same rate as accumulation phase. The government’s rationale was that TTR was being used as a tax minimisation vehicle by people who had no intention of reducing work hours or retiring. The change removed the earnings tax advantage of TTR, leaving only the salary sacrifice tax arbitrage as the primary remaining benefit.
What this means in practice: if someone on a high salary uses TTR purely for the salary sacrifice strategy (not to reduce hours), the benefit is real but more modest than pre-2017 guidance suggests. If someone expects to maintain a large TTR balance for many years without retiring, the 15% earnings tax erodes returns compared with simply holding the balance in accumulation phase (also at 15%), without the 10% drawdown restriction making a standard accumulation account potentially preferable to TTR for those not also implementing salary sacrifice.
The Two Main TTR Strategies in 2026
Strategy 1: Reducing Work Hours Without Reducing Income
This is the most straightforward use of TTR. You reduce your working hours (and therefore your employment income) and draw from your TTR pension to replace the lost income, maintaining your total household income.
Example:
- Age: 62. Current salary: $90,000/year (5 days/week)
- Decision: Reduce to 4 days/week = $72,000/year employment income
- Gap: $18,000/year shortfall
- TTR pension: Draw $18,000/year from TTR account (tax-free after 60)
- Total income: $72,000 (employment, taxed) + $18,000 (TTR, tax-free) = $90,000 same as before
The financial benefit here is not primarily tax savings (the employment income is still taxed normally) it’s lifestyle: one extra day per week free, same income, same lifestyle. For many Australians in their early 60s, this is the most compelling use of TTR: it enables a genuine gradual retirement rather than a hard stop.
One consideration: as your employment income reduces, you’re also receiving fewer employer SGC contributions (12% on the lower salary). This reduces super accumulation compared with staying full-time. Weigh this against the lifestyle benefit.
Strategy 2: Salary Sacrifice + TTR to Save Tax While Working Full-Time
This is the more financially complex and potentially more rewarding use of TTR. You stay in full-time employment, increase salary sacrifice into super at the concessional rate (15%), and draw from the TTR pension to replace the after-tax income surrendered through sacrifice. The net effect is the same take-home pay, but less tax paid overall.
Worked example:
| Item | Without TTR Strategy | With TTR + Salary Sacrifice |
|---|---|---|
| Employment salary | $100,000 | $100,000 |
| Salary sacrifice into super | $0 | $20,000 |
| Taxable employment income | $100,000 | $80,000 |
| Income tax + Medicare (approx.) | ~$26,000 | ~$17,500 |
| Take-home pay from employment | ~$74,000 | ~$62,500 |
| TTR pension income (tax-free, age 60+) | $0 | $20,000 (to replace lost take-home) |
| Total net income received | ~$74,000 | ~$82,500 |
| Tax on salary sacrifice (15% in super) | N/A | $3,000 (15% on $20,000) |
| Annual tax saving | — | ~$8,500 (marginal rate ~34.5% vs 15%) |
Approximations based on 2025–26 tax rates including Medicare levy. Actual saving depends on the individual’s full marginal rate (including any applicable offsets) and the split between taxable and tax-free components of the TTR pension. The saving is the difference between what would have been paid in income tax on the sacrificed amount (at marginal rate) and what is actually paid (15% in super).
The key insight: salary sacrifice at 34.5% marginal rate saves 19.5% tax on each sacrificed dollar (34.5% − 15% = 19.5%). On $20,000 sacrificed, the annual tax saving is approximately $3,900. If combined with drawing TTR income tax-free after 60, the net take-home position improves by the full tax saving. This is the core of the TTR strategy and it’s most valuable for those on high marginal rates (37–47%).
Important limits: the concessional contribution cap is $30,000 per year (2025–26), including employer SGC contributions. If your employer contributes $12,000 (12% of $100,000), you can salary sacrifice up to $18,000 more before hitting the cap. Exceeding the concessional cap results in the excess being taxed at your marginal rate with an interest charge. See our guide on whether extra super contributions before 60 are worth it for a full analysis of concessional contribution strategy.
TTR vs Full Retirement: When to Make the Switch
A TTR income stream automatically becomes a standard account-based pension (retirement phase) when you meet a condition of release most commonly by fully retiring after age 60, or by simply turning 65. At that point, three things change that make full retirement phase materially more attractive than TTR:
| Feature | TTR Phase | Full Retirement Phase (ABP) |
|---|---|---|
| Tax on fund earnings | 15% | 0% (up to $1.9M Transfer Balance Cap) |
| Maximum annual withdrawal | 10% of balance | No maximum |
| Lump sum access | Generally not permitted | Fully permitted |
| Minimum annual withdrawal | 4% of balance | 4% (age 60–64), rising with age |
| Tax on payments (age 60+) | Tax-free | Tax-free |
The 15% earnings tax in TTR vs 0% in full retirement phase is the most significant difference. On a $500,000 TTR balance earning 6% gross ($30,000/year), the 15% tax costs $4,500/year in additional tax compared with being in full retirement phase. Over 5 years, this amounts to approximately $22,500 in extra tax before the compounding effect of that lost tax on future returns.
This is why TTR is a transition strategy, not a permanent one. Once you’ve fully retired (or turned 65), converting from TTR to a full retirement income stream eliminates the earnings tax disadvantage and removes the 10% drawdown cap, giving you full flexibility to manage income as you need.
The notification process for converting a TTR to full pension phase is managed through your super fund. The ATO’s guidance on accessing super to retire covers the conditions of release that trigger this conversion.
Is TTR Right for You? A Decision Framework
| Your Situation | TTR Likely Worthwhile? | Why |
|---|---|---|
| Age 60–67, high marginal rate (37%+), planning salary sacrifice | Yes strong case | Tax saving on salary sacrifice is maximised; TTR income tax-free after 60 |
| Age 60+, wanting to reduce work hours without reducing income | Yes strong case | Core use case for TTR; maintains lifestyle during phased retirement |
| Age 60–67, 32.5% marginal rate, moderate salary sacrifice capacity | Moderate worth modelling | Smaller tax saving (17.5% arbitrage); benefits are real but less dramatic |
| Age 60+, planning to fully retire soon (within 1–2 years) | Probably not or very briefly | Short TTR period means small cumulative tax saving; complexity may not be worth it |
| Age 55–59 (preservation age below 60) | Marginal get advice | TTR income not tax-free; 15% offset applies; more complex calculation required |
| Near Age Pension age (65–67), approaching means test | Caution model carefully | TTR balance assessed in assets test; TTR income subject to deeming in income test. May affect pension eligibility |
| Planning to use TTR as a permanent structure without salary sacrifice | Generally not worthwhile post-2017 | 15% earnings tax same as accumulation; 10% cap restricts flexibility; no benefit over staying in accumulation |
In our experience advising 500+ Australian families, TTR is most clearly worthwhile for Australians aged 60–67 on salaries above $90,000 who have capacity to salary sacrifice $15,000–$20,000/year and want to either reduce hours or generate a material annual tax saving on the way to full retirement. Below these thresholds or outside these scenarios, the complexity of TTR often exceeds its benefit.
The Age Pension Interaction With TTR
For those approaching Age Pension age (67) while still on a TTR, two points matter:
- Assets test: Your TTR account balance is a financial asset assessed under the Age Pension assets test the same as an accumulation account. It does not receive any special treatment
- Income test: Income from a TTR is subject to deeming under the income test (not assessed at the actual amount drawn), which is consistent with how account-based pension balances are treated for pension-age recipients. The deeming rate (0.25% on the first $62,600, 2.25% above) applies to the account balance regardless of how much you actually withdraw
For people close to 67, the Age Pension impact of maintaining a TTR balance versus other asset structures should be modelled as part of the TTR decision. For the full Age Pension strategy context, see our guide on legal strategies for super and the Age Pension.
Frequently Asked Questions
A TTR strategy is a financial arrangement that allows Australians who have reached preservation age (60 for most people born after 30 June 1964) to draw up to 10% of their super balance per year as a tax-free income stream while continuing to work. It’s most commonly used either to reduce work hours without reducing total income (drawing TTR pension to replace lost employment income) or to implement a salary sacrifice strategy that saves tax while maintaining take-home pay. Since 1 July 2017, earnings within a TTR fund are taxed at 15% the same as accumulation phase which reduced but did not eliminate TTR’s tax advantages. The ATO’s TTR guidance has the full technical rules.
Between 4% and 10% of your account balance per financial year. You must draw at least 4% (the minimum pension payment rules apply the same as for a standard account-based pension) and cannot draw more than 10% while in TTR phase. If your balance is $400,000, you can draw between $16,000 and $40,000 per year. You cannot take a lump sum from a TTR account while still in TTR phase only regular income payments within the 4–10% band. This restriction is removed when you fully retire and convert the TTR to a full retirement income stream.
After age 60, TTR pension payments from a taxed superannuation fund are completely tax-free the same as withdrawals from a full retirement account-based pension. For Australians aged 55–59 who are on a TTR (if their preservation age is below 60 due to date of birth), a 15% tax offset applies on the taxable component of pension payments, but this cohort is very small given most working Australians today have a preservation age of 60. Note that while the payments are tax-free after 60, the earnings within the TTR fund are taxed at 15% which is the same as your accumulation account but higher than the 0% that applies in full retirement phase.
The tax saving depends on your marginal rate and the amount you salary sacrifice. The calculation: (your marginal rate − 15%) × salary sacrifice amount = annual tax saving. For someone on a 34.5% marginal rate (including Medicare levy) sacrificing $20,000: (34.5% − 15%) × $20,000 = $3,900/year. For someone on a 47% marginal rate sacrificing $20,000: (47% − 15%) × $20,000 = $6,400/year. The salary sacrifice must stay within the concessional contribution cap ($30,000/year total in 2025–26, including employer SGC). At 12% SGC on a $100,000 salary, the employer contributes $12,000 leaving $18,000 of cap available for salary sacrifice. Exceeding the cap triggers excess concessional contribution treatment at your marginal rate.
When you meet a condition of release typically fully retiring after age 60 your TTR income stream automatically converts to a standard retirement income stream (account-based pension). The key changes: (1) the 15% tax on fund earnings drops to 0%; (2) the 10% maximum drawdown cap is removed; and (3) you gain full lump sum access. You must notify your super fund of your retirement so they can update the fund’s records and claim the tax exemption on earnings. For SMSF members, additional ATO reporting is required. The conversion is typically straightforward for APRA-regulated funds contact your fund’s member services team when you retire to initiate the process.
Yes, but less broadly than before the 2017 rule changes. TTR is most clearly worthwhile for Australians aged 60–67 on marginal rates of 34.5% or above who have capacity to salary sacrifice $10,000–$20,000+ per year, or for those who genuinely want to reduce work hours without reducing income. For those on lower marginal rates, planning to retire within 12–18 months, or using TTR without salary sacrifice, the benefits are modest and the complexity may not be justified. The removal of the 0% earnings tax in TTR (changed to 15% in 2017) was the single biggest reduction in TTR’s value. Getting personalised advice before starting a TTR strategy is strongly recommended the optimal approach varies significantly by individual circumstances.
Yes but at age 65, the condition of release changes. Once you reach 65, you can access your super unconditionally, regardless of your employment status. This means you can open a full retirement account-based pension at 65 (with 0% earnings tax) rather than a TTR (with 15% earnings tax). For most 65+ Australians who are still working part-time, converting to a full retirement income stream and drawing from it as needed is more tax-efficient than maintaining a TTR. There is no restriction on working while receiving a full retirement income stream TTR’s special status is primarily relevant for ages 60–64.
Making TTR Work for Your Situation
The Transition to Retirement strategy is genuinely useful for specific Australians in specific situations primarily those aged 60–67 with higher incomes who want to either gradually reduce work or extract maximum value from the salary sacrifice tax arbitrage. For others, the complexity may outweigh the benefit, and the 2017 changes significantly narrowed its advantages.
Before starting a TTR, the key questions to model are: How much will I actually save in tax annually? What is the opportunity cost of the 15% earnings tax versus full pension phase? How long before I’m likely to fully retire? Is the salary sacrifice strategy still within the concessional cap given my employer’s SGC contributions?
At Wealthlab, we model TTR strategies as part of comprehensive retirement transition planning ensuring the tax saving is real, the drawdown structure is optimal, and the switch to full retirement phase is timed correctly. Book a free consultation today to find out whether a TTR strategy makes sense for your specific situation.