Transition time: How to access your super while continuing to work

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As a country, we’ve got a lot to be proud of: beautiful coastline, excellent free healthcare and fantastic coffee in all capital cities that don’t start with S.

Rounding out that list is our superannuation system, envied by countries around the world and responsible for furnishing millions of Australians with a healthy, happy retirement.

But super, as great as it is, is also a bit of a tease. You work your whole life, watching this pot of money grow and grow with virtually no way to access it until you reach your preservation age and retire (or you turn 65, but that’s like a whole extra five years and who wants to wait that long).

What’s the problem?

Adding to this is the fact that many older Australians don’t want to quit their jobs once 60 rolls around, either for financial reasons, or because they simply enjoy what they do.

But what about if I told you there was a way you could hit 60, keep working, but also tap into your super? Does it sound too good to be true? Well, it’s not!

What you can do about it

Enter transition to retirement (TTR) strategies, an often overlooked income stream that straddles the line between having your super and staying at work. Here’s how they work:

• How do they work: TTR pensions allow you to draw down on your super while you’re still working, perfect for anyone who might want to start trimming their hours without losing their income, or to help you salary sacrifice more into super before you fully retire. You can set up a TTR once you reach your preservation age – which for anyone born after 1964 is 60 – by contacting your superannuation fund and asking them to start one. You are restricted to drawing a maximum of 10 per cent of your super account balance via a TTR each year, and you must draw down at least 4 per cent. You can choose how frequently you want to receive these payments, and cannot receive lump sums. TTR income is tax-free, just like your super, and investment earnings on your TTR balance are taxed like the returns on your super accumulation accounts – up to 15 per cent.
• Who are they right for? TTR strategies aren’t hugely popular, partly because they’re not often talked about, and partly because it can be difficult to see the value in them. However, Ian Helmore, financial planner at Bridges Financial Services, says TTRs can be more useful than they first appear, noting that for many, once you hit 60 your expenses have generally reduced, and the additional income from a TTR can be useful in a range of different scenarios. “This additional income can provide the ability to reduce tax and increase superannuation balances through additional contributions,” he says. “Individuals can still make contributions to super, both pre- and post-tax, within the contribution limits and rules, potentially up to age 75.” What this means is you can salary sacrifice more of your pay into super while keeping your income level by supplementing it with your TTR. This also reduces the tax you pay, as you’ll receive less from your employer and your TTR income is tax-free. Helmore also says these funds can be used in other constructive ways, such as paying down your mortgage or boosting your spouse’s super. “It’s important to be aware that this will reduce your super balance. But this isn’t necessarily a negative, especially if the funds are being used for expenses that would be incurred regardless,” he says. “In this case, the drawdown simply occurs earlier, while employment income is still being received.”
• What happens when I retire? Once you hit 65, or you’re 60 and you leave your employer (you don’t have to “retire”, just leave), you’ve met the conditions for full access to your superannuation. For those on a TTR plan, MLC superannuation specialist Jenneke Mills says this is pretty seamless transition that will generally be managed by your fund. “[Your fund will] convert your TTR pension into a ‘retirement phase pension’. This means you’ll no longer be limited as to how much you can draw out each year, you can access lump sums and all the earnings on your investments in the pension account will be tax-free,” she says. However, be aware of the transfer balance cap rules, Mills warns, which limits how much super can be transferred into a retirement phase pension account.
• What else to consider: Finally, Helmore notes TTRs are not for everyone, and you should be clear on your intentions and use for the fund before opting for it − for some people, just continuing to work as you have been will be a smarter move financially. “Where possible, use the funds to improve your overall financial position, whether that’s reducing debt, accumulating funds tax-effectively or maintaining assets that will provide you benefits in the future,” he says.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.