You have turned 60, you are still working, and you do not want to stop cold. A transition to retirement (TTR) pension — also called a transition to retirement income stream, or TRIS — lets you draw a regular income from your super while you keep working. In 2026-27 the headline is simple: payments from a taxed fund are generally tax-free from age 60, you must draw between 4% and 10% of the balance each financial year, and you cannot take the money as a lump sum while you are still working. The trap is equally simple: earnings inside the pension account are still taxed at up to 15% until you fully retire or turn 65. It is not a retirement-phase pension yet, and treating it like one is where people come unstuck.
This guide covers how a TTR pension works, who can start one, how payments are taxed at 60 and over versus under 60, two worked examples in real 2026-27 dollars, the 10% cap traps, and how Division 293 and Division 296 interact with the strategy. Figures are checked against the ATO and the 2026-27 rates and caps.
How a TTR pension works
Normally your super stays locked until you meet a condition of release, such as retiring. A TTR pension is the exception built for the wind-down years: part of your balance moves into a pension account that pays you a regular income alongside your wage. You do not have to cut your hours — reducing hours is one use of it, not a condition of starting one.
Three mechanics define it:
- A drawdown band, not free access. Each financial year you must draw at least the minimum pension payment and no more than 10% of the account balance. For someone under 65 the minimum is 4%, so the band is 4% to 10%.
- Non-commutable. You cannot convert the pension into a cash lump sum while you are still working.
- A second account. You leave a balance in accumulation so employer contributions can keep landing and any insurance inside super stays in place.
The band is measured against the balance at the start of the financial year (or at commencement, in year one). If you start mid-year, ask your fund how it applies the first-year calculation.
Who can start one: preservation age
You can start a TTR pension once you have reached preservation age and are still working. Preservation age depends on your date of birth:
| Date of birth | Preservation age |
|---|---|
| Before 1 July 1960 | 55 |
| 1 July 1960 – 30 June 1961 | 56 |
| 1 July 1961 – 30 June 1962 | 57 |
| 1 July 1962 – 30 June 1963 | 58 |
| 1 July 1963 – 30 June 1964 | 59 |
| From 1 July 1964 | 60 |
For anyone starting a TTR pension in 2026-27, that means age 60 in practice. The under-60 tax rules below therefore matter mainly to people who started one years ago under an earlier preservation age. If you are 60 or over, the tax-free treatment applies — but do not skip the earnings-tax section, because that one still bites at 60.
How TTR income is taxed
Two separate tax questions cause most of the confusion: tax on the payments you receive, and tax on the earnings inside the fund.
Tax on the payments you receive
| Your age | Taxed element of the payment | Tax-free component |
|---|---|---|
| 60 or over | Tax-free — non-assessable, non-exempt income. You generally do not declare it, and the fund does not withhold tax. | Tax-free |
| Preservation age to 59 | Taxed at your marginal rate, less a 15% tax offset on the taxable component. You must declare the taxable component in your tax return, and the fund withholds tax. | Tax-free |
Every super payment splits into a tax-free component (after-tax contributions and similar amounts) and a taxable component. The taxable component of a payment from an APRA-regulated fund is almost always the taxed element, meaning tax has already been paid on it inside the fund at 15%. The proportioning rule applies: each payment carries the same tax-free and taxable split as the account itself, so you cannot choose to draw only the tax-free part.
Tax on earnings inside the fund: still 15%
Here is the part fund marketing tends to bury. A TTR pension is not in the retirement phase until you turn 65 or notify your fund that you have met a full condition of release, such as retiring. Until then, the fund cannot claim exempt current pension income on the assets supporting it, and earnings are taxed at up to 15% — the same as an accumulation account. The ATO states this directly on its transition to retirement income streams page. Put numbers on it: a $300,000 account earning 5% generates $15,000 of earnings and up to $2,250 of fund tax; once converted, those earnings are tax-exempt.
Worked example 1: a 60-year-old drawing $30,000
Margaret is 60, works four days a week, and has $310,000 in super. She moves $300,000 into a TTR pension, leaves $10,000 in accumulation for employer contributions and insurance, and draws the maximum: 10% of $300,000, or $30,000.
- Tax on the $30,000 payment: $0. She is 60 or over and the payment comes from a taxed fund, so it is non-assessable, non-exempt income. She does not declare it, and it does not change her tax bracket or Medicare levy.
- Minimum next year: at least 4% of the balance on 1 July — even in a year when she does not need the money.
- Earnings tax inside the fund: up to 15%. At a 5% return, roughly $15,000 of earnings attracts up to $2,250 of fund tax, until the pension enters the retirement phase.
- What she cannot do: take the $300,000 as a lump sum, or draw $40,000 for a holiday. The 10% ceiling is a hard cap, not a guideline.
The contrast answers the most common forum question. If Margaret were 59 with a preservation age of 59 and drew the same $30,000, the taxable component would be assessable income taxed at her marginal rate, less the 15% tax offset — still leaving real tax payable at a 30% marginal rate plus 2% Medicare levy. That is why the strategy only becomes compelling at 60.
Worked example 2: TTR plus salary sacrifice, the pair that pays
David is 61, earns $120,000 a year, and has $300,000 in super. His employer pays 12% super guarantee — $14,400. The concessional contributions cap for 2026-27 is $32,500, so he has $18,100 of cap room, which he salary sacrifices in full. All figures below use the 2026-27 resident rates (nil to $18,200, 15% to $45,000, 30% to $135,000) plus the 2% Medicare levy, before any tax offsets. Check your own numbers on the income tax calculator and the super calculator.
| Without the strategy | With TTR plus salary sacrifice | |
|---|---|---|
| Taxable salary | $120,000 | $101,900 |
| Income tax plus Medicare levy | $28,920 | $23,128 |
| Personal tax saved | — | $5,792 |
| Contributions tax in the fund (15% of $18,100) | — | $2,715 |
| Net benefit | — | $3,077 per year |
The arithmetic is the whole strategy in one line: dollars that would have been taxed at 32% (30% marginal rate plus 2% Medicare levy) are instead taxed at 15% inside the fund. The 17-percentage-point gap on $18,100 is the $3,077.
But David’s take-home pay still drops by $12,308 ($18,100 sacrificed, less $5,792 of personal tax saved). That is where the TTR pension comes in: he draws $12,308 tax-free from his $300,000 TTR pension, which sits neatly inside his 4% to 10% band ($12,000 to $30,000). His take-home pay is unchanged, and his super is $3,077 better off each year he repeats the strategy — before investment returns and fees. Our superannuation tax and salary sacrifice guide and the 2026-27 contribution caps guide cover the contribution side and the carry-forward rule for unused cap amounts.
Three conditions make or break this example: unused concessional cap room (if employer contributions already use the full $32,500, there is nothing to sacrifice); a marginal rate comfortably above 15% (at 15% plus Medicare levy, the saving shrinks to about 2% of the sacrificed amount); and a sacrifice arranged prospectively, before the income is earned.
The 10% cap and non-commutable traps
The 10% ceiling causes more failed TTR plans than any other rule, because people size the pension wrong. The band applies to the pension account balance, not your total super. Move $650,000 into a TTR pension and you are forced to draw at least $26,000 a year — even if you only wanted $12,000. Move too little and the maximum will not cover the income gap you planned for. Size the pension account to the income you actually need, and leave the rest in accumulation.
- The lump-sum trap. Needing a lump sum for a deposit, a debt payout or a holiday while still working is the classic reason a TTR pension disappoints. It cannot be commuted, so plan lump sums from elsewhere.
- The forced-minimum trap. The 4% minimum applies every year, including years when you do not need the income. Drawing money you do not need, then recontributing it, wastes cap room and adds paperwork.
- The whole-balance trap. Moving everything into the pension account leaves nowhere for employer contributions to land and can jeopardise insurance held inside super. Always leave an accumulation account open.
- The retirement-notification trap. Retiring before 65 does not automatically convert your TTR pension. You must notify your fund that you have met a full condition of release. Until you do, the 10% cap, the lump-sum restriction and the 15% earnings tax all keep applying.
- The cap-breach trap. Exceeding the $32,500 concessional cap means the excess is taxed at your marginal rate, less a 15% offset for tax already paid in the fund. The cap is per person across all funds, not per fund.
Division 293 and Division 296: how they interact with a TTR strategy
Division 293 adds an extra 15% tax on concessional contributions when your income plus certain add-backs exceeds $250,000, taking the total to 30% — still below the 47% top personal rate including Medicare levy, so salary sacrificing usually remains worthwhile, but the arbitrage in the worked example shrinks from 17 percentage points to just 2 if you are over the threshold. Our Division 293 guide works through the threshold calculation.
Division 296 is the newer tax on large balances: from 1 July 2026, an extra 15% tax applies to the proportion of earnings attributable to a total super balance above $3 million, with a further 10% above $10 million, on realised earnings. A TTR pension does not shelter you from it. Two interactions matter: TTR payments reduce your total super balance, which can matter near the $3 million threshold at 30 June; and when a TTR pension converts, its balance counts toward your transfer balance cap — $2.1 million per person for 2026-27 — so a very large balance can create an excess at conversion. See our transfer balance cap guide.
Common mistakes
- Starting one because a colleague did. The benefit depends entirely on your marginal rate, unused cap room, balance and years to retirement. On a low income or a small balance, the saving may not cover the complexity.
- Assuming the pension is tax-free in every sense. Payments at 60 and over are tax-free, but earnings inside the account are taxed at 15% until retirement phase. Both halves matter.
- Ignoring Centrelink. If you or your partner receive a Centrelink payment, check how the pension account is assessed before starting — it can affect entitlements.
- Treating the 10% cap as a target. Drawing the maximum because it is available depletes the balance you will live on after you stop working. Draw what you need, not what the rules allow.
Tips for getting it right
- Size the pension account to the income gap you need to fill, not to your total balance. Leave the rest in accumulation.
- Run the salary-sacrifice arithmetic on your own salary and cap room before starting, using 2026-27 rates.
- Notify your fund promptly when you retire or turn 65 so the pension converts and the earnings-tax exemption starts.
- If your total super balance was under $500,000 at the previous 30 June, check whether unused concessional cap amounts from the last five years can be carried forward.
- Get personal advice if Division 293, Division 296, a defined benefit scheme or a Centrelink entitlement is in play.
Frequently asked questions
Can I start a TTR pension at 60 while still working full-time?
Yes. Preservation age is 60 for anyone born on or after 1 July 1964, and there is no requirement to reduce your hours.
Is TTR pension income really tax-free?
From age 60, payments from a taxed fund are generally tax-free and do not need to be declared. From preservation age to 59, the taxable component is taxed at your marginal rate less a 15% tax offset. Earnings inside the fund are separate — taxed at up to 15% until retirement phase.
Can I take part of my TTR pension as a lump sum?
Not while you are still working. A TTR pension is non-commutable, so it can only be paid as regular income. Lump-sum access opens once you meet a full condition of release, such as retiring or turning 65.
Does a TTR pension count toward the transfer balance cap?
Not while it is a TTR pension. It only counts toward the $2.1 million cap for 2026-27 when it enters the retirement phase — at 65, or when you notify your fund that you have retired. A very large balance can create an excess at conversion, so check before then.
What happens when I fully retire or turn 65?
The pension converts to a retirement-phase account-based pension: the 10% maximum ends, lump-sum restrictions end, and investment earnings become tax-exempt. At 65 the conversion is automatic; if you retire earlier, you must notify your fund.
Is a TTR pension worth it on a lower income or a small balance?
Usually not as a tax strategy. The saving comes from the gap between your marginal rate and the 15% contributions tax. If your marginal rate is 15% plus the 2% Medicare levy, the gap is only about 2% of the sacrificed amount, and fees and paperwork can erase it. The lifestyle version can still be worthwhile, but judge it on time gained, not tax saved.
The bottom line
A transition to retirement pension is a bridge, not a destination. From age 60 it pays tax-free income within a 4% to 10% band while you keep working, and paired with salary sacrifice it can add a few thousand dollars a year to your super without changing your take-home pay. Its limits are just as fixed: no lump sums while you work, a forced minimum every year, earnings taxed at 15% until you retire or turn 65, and a balance that counts toward the transfer balance cap the moment it converts. Run the numbers on your own salary, cap room and balance before you start.
