Transition to retirement
A transition to retirement (TTR) income stream can be commenced once a member has satisfied the 'attaining preservation age' condition of release and can be commenced with preserved (or a mixture of preserved and non-preserved) benefits.
A TTR income stream is essentially an account based pension, with the following additional restrictions applying until the member has met a full condition of release:
- total maximum income stream payments of 10% of the 1 July account balance per financial year applies, and
- the income stream can only be commuted to pay a lump sum withdrawal in very limited circumstances.
Once the member meets a full condition of release, a TTR income stream converts to the rules of an account based pension, with no maximum payment applying and voluntary commutations allowable.
While not covered in this section, the following other types of income streams can be commenced when the 'attaining preservation age' condition of release is satisfied:
- a non-commutable allocated pension or annuity (must have been commenced prior to 20 September 2007)
- a non-commutable pension or annuity.
Attaining preservation age condition of release
A member meets the 'attaining preservation age' condition of release simply by reaching their preservation age. No changes to a member's employment arrangements are required in order to satisfy this condition of release.
As mentioned above, once this condition of release has been satisfied, the cashing restrictions allow the member to commence any of the following income streams:
- a transition to retirement income stream
- a non-commutable allocated pension or annuity
- a non-commutable pension or annuity.
It is important to note that the payment rules that apply to TTR income streams are the minimum rules required under the SIS Regulations. Superannuation funds may impose additional rules and restrictions to their account based pensions, provided the minimum SIS rules are satisfied.
A TTR income stream must comply with all of the payment rules that apply to account based pensions. For example, income stream payments totaling at least 4% of the account balance per financial year must be paid while a member is under age 65. However, two additional restrictions apply until a full condition of release has been met.
Maximum annual payment requirement
The total amount of income stream payments in any financial year are limited to a maximum of 10% of the account balance at the start of each financial year (or the balance at commencement date in the first part financial year). The maximum income stream payment requirement excludes commutations, but includes payments made under a payment split.
This maximum payment is not required by legislation to be reduced on a pro rata basis if the TTR income stream is started or commuted part way through a financial year.
TTR income streams are generally non-commutable. However, cash commutations may be made:
- to pay a super contributions surcharge
- to pay a non-member spouse under a Family Law payment split
- to ensure a payment may be made under a Release Authority (eg for the release of excess contributions), or
- to cash an unrestricted non-preserved benefit.
Where a member commutes a TTR income stream, the value of a commutation is generally not counted towards the 10% of account balance limit for TTR income payments.
Commuting back to accumulation phase
While there are restrictions on cash commutations, benefits in a TTR income stream can be commuted:
- back to accumulation phase
- to roll over to another superannuation fund accumulation account, or
- to roll over to another TTR income stream.
Restrictions removed once a full condition of release has been satisfied
While technically remaining a TTR income stream, a TTR income stream converts to the rules of an account based pension where a member has met a full condition of release, for example permanently retiring after reaching preservation age, ceasing gainful employment after reaching age 60, reaching age 65 or death.
Once this occurs:
- no maximum payment requirement will apply
- voluntary commutations can be made in the same way as for an account based pension.
It is also important to note that a TTR income stream generally becomes a retirement phase income stream for transfer balance cap purposes once a full condition of release has occurred (and the trustee has been advised except where due to reaching age 65).
Last modified: Wednesday, July 24, 2019