Structuring Retirement with Account-Based Pensions and TTR Pensions

Understanding the different pensions available as you approach retirement can help you make more informed decisions about your financial future.

At Collective Wealth Advisers, we want to simplify this process by explaining the key differences between two types of pensions commonly used by Australian retirees:

An Account-Based Pension and a Transition to Retirement (TTR) Pension.

This article will compare these two pension strategies, helping you have more comprehensive discussions with your financial adviser and navigate your retirement planning effectively.

Comparison of Account-Based Pension and Transition to Retirement Pension

Below is a quick comparison of an Account-Based Pension and a Transition to Retirement Pension.

Account-Based Pension Explained

An Account-Based Pension allows retirees to convert their superannuation savings into a regular income stream. You can start an Account-Based Pension once you’ve reached your preservation age and have fully retired.

Please refer to the Australian Taxation Office’s (ATO) guidelines for your specific preservation age. Please note that the preservation age will increase to 60 for everyone from 1 July 2024.

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


Benefits of Account-Based Pensions

One key advantage is their flexibility. You can withdraw any amount above the minimum annual pension income factor, allowing you to manage your retirement income according to your needs.

Another significant benefit is the tax-free earnings once you reach the age of 60. At this point, any income you receive from your Account-Based Pension is entirely tax-free. Additionally, the earnings on your investments within the pension are generally tax-free, which can enhance your retirement savings and provide more financial security.

You can also make additional lump sum withdrawals, which can help with unexpected expenses.

Disadvantages of Account-Based Pensions

There are a few disadvantages to Account-Based Pensions that should be considered.

One such disadvantage is the Transfer Balance Cap, which restricts you from transferring up to $1.9 million into an Account-Based Pension. Any superannuation funds above this cap must either remain in the accumulation phase, where earnings are taxed at the concessional rate of 15% or be withdrawn from super entirely.

The income from an Account-Based Pension depends on market performance. If the market does well, your income might increase, but if it does poorly, your income could decrease. This means your retirement income is only guaranteed to be consistent or lifelong if the market performs well.

Transition to Retirement (TTR) Pension Explained

A Transition to Retirement (TTR) Pension allows you to access a portion of your superannuation while still working, provided you have reached your preservation age. This strategy is particularly beneficial for those who wish to reduce their working hours or salary sacrifice more into their super.

Read more about the TTR Pension in our previous article here.

Benefits of TTR Pensions:

One of the primary benefits of TTR Pensions is their work flexibility. If you reduce your working hours, a TTR Pension can supplement your income, ensuring a steady flow of funds and a smoother transition into retirement. This is particularly useful for those who have yet to retire fully but wish to scale back their workload.

Another significant advantage is the tax benefits. Before age 60, your TTR Pension income is taxed at your marginal tax rate with a 15% offset. After turning 60, this income becomes entirely tax-free, leading to substantial tax savings and increased disposable income. You can’t access a TTR before 60, starting from 1st July 2024.

TTR Pensions also provide flexible investment options. You can choose from various strategies, tailoring your investments to match your risk tolerance and financial goals. This flexibility can enhance the growth of your retirement savings despite market fluctuations.

Disadvantages of TTR Pensions:

One downside of TTR Pensions is the withdrawal limits. You can only access between 4% and 10% of your super balance each year. This can limit your financial flexibility if you need more significant sums.

Another drawback is the restriction on lump sum withdrawals. Unlike Account-Based Pensions, TTR Pensions don’t allow lump sum withdrawals unless you fully retire or meet specific conditions. This can be a problem if you need a large sum for unexpected expenses.

Another disadvantage to consider is the investment returns within a TTR Pension. Returns are taxed at up to 15%, which is higher than the tax-free status of Account-Based Pensions. This could reduce the growth of your super savings.

Making the Right Choice for Your Retirement

Choosing between an Account-Based Pension and a Transition to a Retirement Pension depends on your circumstances and retirement goals. At Collective Wealth Advisers, we recommend considering the following:

Retirement Status:

If you have met the retirement definition/or met a condition of release and wish to retire fully, an Account-Based Pension might be more suitable due to its flexibility and tax advantages.

Current Employment:

If you are still working but want to reduce your hours or enhance your super contributions, a TTR Pension can provide additional income while transitioning to full retirement.

Income Needs:

Evaluate your current and future income requirements to determine which pension strategy aligns best with your financial goals.

Collective Wealth Advisers is committed to helping you navigate these options and create a retirement plan that ensures financial security and peace of mind.

If you need further assistance or personalised advice, please contact Collective Wealth Advisers. Our team of experts are here to guide you through every step of your retirement planning journey.

  • Collective
  • May 30 2024
  • Retirement Planning
  • Retirement Planning

    Choosing the Right Financial Adviser for Retirement Planning

    Collective, 29 May 2024

    Learn expert advice for a stress-free financial future and take the guesswork out of choosing a financial adviser for your retirement planning.

    // Read More
  • Retirement Planning

    Income in Retirement: 3 Options for Retirees

    Collective, 25 Apr 2024

    Are you often wondering how you’ll manage financially once you step away from the workforce? With increasing lifespans and fluctuating global financial markets, ensuring your retirement savings lasts is more crucial than ever. Many retirees...

    // Read More
  • Retirement Planning

    Forced Into Early Retirement? Here are 4 Things To Consider

    Collective, 21 Feb 2024

    Whether due to unforeseen circumstances or deliberate choices, empower yourself with the knowledge to navigate early retirement with confidence and resilience.

    // Read More