Understanding a transition to retirement account
A transition to retirement account (sometimes referred to as a ‘transition to pension’ or ‘pre-retirement pension’ account) allows you to access some of your super while you continue to work, provided you’ve reached your preservation age.
By setting up a transition to retirement account using our Mercer SmartRetirement Income product, alongside your super account means you’ll have a super account, which your employer will continue to pay your super contributions into, and a pension account you can start drawing an income from.
This type of account gives you some freedom to reduce your working hours, while supplementing your income.
Determining your preservation age
Your preservation age depends on your date of birth, and once reached means you’re eligible to start accessing your super.
The below table will help you determine when you’ll reach preservation age.
Date of birth
Before 1 July 1963
1 July 1963 - 30 June 1964
1 July 1964 and onwards
If you’re 65 or over, already retired or need to retire earlier than planned and have met your preservation age you can start an allocated pension account using our Mercer SmartRetirement Income product and access your super.
Transition to retirement rules
If you have met the eligibility conditions you can invest up to any amount of your super balance into a transition to retirement account. However, it should be noted that a $1.9 million cap will apply once you've fully retired or reach age 65 and your account is automatically converted to allocated pension phase.
If you hold more than $1.9 million in your account at this point you may be subject to taxes and you’ll be required to withdraw the excess amount over $1.9 million.
If you are continuing to work, you need to leave some money in your super account to keep it open, so your employer can continue making contributions.
You may also want to take into consideration any insurance within your super account, as it may be cancelled if the account closes or there aren’t enough funds to pay the premiums.
Once you’ve set up your transition to retirement account, you can then access between 4% and 10% of the account balance each financial year.
Once you let us know you’ve fully retired or you reach 65 years old, your transition to retirement account will automatically be converted to allocated pension phase within the same Mercer SmartRetirement Income product. You’ll then have no limit on the amount that you can withdraw.
Deciding whether a transition to retirement account is right for you
A transition to retirement account may not be right for everyone, and will depend on your own personal needs and financial circumstances. To help decide whether this account may be for you, we have listed some of its potential advantages and disadvantages:
Transition to retirement advantages
- If you’re 60 and over, your transition to retirement pension payments are generally tax-free.
- If you’re between the preservation age and 59 transition to retirement pension payments generally attract a 15% tax offset.
- Investment earnings for a transition to retirement account are tax free once you:
- leave employment at age 60 or after, or
- retire permanently from the workforce, or
- turn 65, or
- become permanently disabled or terminally ill.
Transition to retirement disadvantages
- The earlier you start accessing your super, the less you might have when you fully retire.
- Starting a transition to retirement account may affect your or your partner’s government benefits.
- You may lose your insurance benefits if you don’t maintain a certain balance in your super account.
Setting up a transition to retirement account
If you’ve reached, or are close to reaching your preservation age and are considering opening a transition to retirement account, we recommend first seeking financial advice. As part of your membership, our Helpline Advice team can provide financial advice about your super fund at no additional cost. You can make an appointment with this team by calling our Helpline on 1800 671 369 between 8am-7pm (AEST/AEDT), Monday-Friday.
Disclaimer: Information current as at 1 July 2023. It has been prepared on behalf of Mercer Superannuation (Australia) Limited (MSAL) ABN 79 004 717 533, Australian Financial Services Licence 235906, the trustee of Mercer Super Trust ABN 19 905 422 981. We recommend you seek professional advice from a licensed, or appropriately authorised, financial adviser if you are unsure of action to take. The value of an investment in the Mercer Super Trust may rise and fall from time to time. Neither MSAL nor Mercer (Australia) Pty Ltd (Mercer) guarantees the investment performance, earnings or return of capital invested in the Mercer Super Trust. Past performance should not be relied upon as an indicator of future performance. ‘MERCER’ and Mercer SmartPath are Australian registered trademarks of Mercer ABN 32 005 315 917. Copyright 2023 Mercer LLC. All rights reserved.