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Transition to retirement strategy explained
May 2025
Through a transition to retirement strategy, you may be able to access some of your super while you’re still working. We look at how it works and the steps required to start one.
How a transition to retirement strategy works
A transition to retirement strategy is designed to help you move from full-time work to retirement, in a gradual way.
Essentially, transition to retirement enables you to access your super before you retire, once you’ve reached your preservation age—age 60.
Benefits of a transition to retirement strategy
Taking out a transition to retirement strategy could benefit you in two ways:
1. Reduce your work hours
Transition to retirement can be used to gently move into retirement by remaining in the workforce but on a part-time basis.
To maintain the same level of income, a transition to retirement income stream allows you to make up the difference in lost income from your super. And as you’re still employed, your super savings will continue to be contributed to as well.
2. Boost your super while saving on tax
Transition to retirement can be used to grow a super balance and may help you save on tax while working full time.
When you sacrifice some of your salary into super or make your own contributions that you can claim as a personal tax deduction, each contribution is generally taxed at a rate of 15%. These amounts count towards your concessional contribution cap. This cap is $30,000 per year (for 2024-25).
If your marginal tax rate (the tax rate you pay on your income) is higher than 15%, this may be a valuable strategy to boost your super balance.
For those earning around or above $250,000 per year, some or all these contributions may be taxed at 30% (rather than 15%). However, as your personal income tax rate will be 47% (including the Medicare Levy), tax savings will still generally be available.
Case study #1: reduced work hours
Ben is 60 years old and currently earns $100,000 a year before tax. He decides to ease into retirement by reducing his work hours to three days a week. This means his income will drop to $60,000 a year before tax.
He decides to transfer $200,000 from his super into a transition to retirement income stream. He then withdraws $20,000 a year, tax-free until he retires. The amount in the transition to retirement income stream will replace some of his lost salary, until he decides to retire from the age of 65.
Case study #2: saving tax
Samantha is 60 and earns $100,000 a year. She intends to keep working full-time for at least another five years.
As she wants to increase her retirement savings, she decides to open a transition to retirement income stream. She transfers $100,000 from her super account into a pension account.
Samantha then gives up some of her salary to make additional contributions into her super on a regular basis. This reduces her total income for the year which also reduces her income tax.
As she’s lost some of her income, she decides to withdraw 4% of her transition to retirement income balance each year.
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Eligibility and conditions for a transition to retirement strategy
To be eligible for a transition to retirement strategy, you must have reached your preservation age. From 1 July 2024, the preservation age is 60.
Additionally, the Australian Taxation Office sets certain conditions, such as:
- You must withdraw between 4% and 10% of your super account balance each year and at least one withdrawal must be made
- Generally, you can't access your super as a lump sum payment while still working. It must be taken as regular payments
- The payments received from your transition to retirement income stream may contribute to your taxable income if you are under age 60
- If you or your partner currently receive social security payments, a transition to retirement may affect your entitlements
- A small balance must be left in a super account so you can receive your employer’s compulsory super contributions or any of your own contributions.
Tax on a transition to retirement strategy
Once reaching 60, pension payments are tax-free. However, at 55 to 59, the taxable portion of your pension payments are taxed at your marginal tax rate but you will receive a 15% tax offset.
Any earnings you make from having your money invested in a transition to retirement income stream, is taxed within the super environment at a maximum rate of 15%.
How to start a transition to retirement strategy
Different super funds have different ways of setting up a transition to retirement so it’s worth talking to your fund if you are considering this option.
Generally, you’ll need to follow these steps:
- Contact your super fund and let them know you want to start a transition to retirement income stream
- Complete the necessary application forms and provide the required documentation, including proof of identify and preservation age
- Clarify the frequency and amount of income stream payments you wish to receive within the permitted range.
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This article has been prepared for OnePath Custodians Pty Limited (OPC) ABN 12 008 508 496, AFSL 238346 as Trustee of the Retirement Portfolio Service (ABN 61 808 189 263). OPC is part of the Insignia Financial group of companies comprising Insignia Financial Limited ABN 49 100 103 722 and its related bodies corporate (Insignia Financial Group).
The information in this article is current as at May 2025 and may be subject to change.
You should read the relevant Financial Services Guide (FSG), Product Disclosure Statement (PDS), Target Market Determination (TMD), Additional Information Guide (AIG), Investment Funds Guide (IFG), and product and other updates (for open and closed products) available at onepath.com.au and consider whether OnePath products are right for you before making a decision to acquire, or to continue to hold any OnePath product. Alternatively, you can request a copy of this information by calling Customer Services on 133 665.
Taxation law is complex, and this information has been prepared as a guide only and does not represent taxation advice. Please see your tax adviser for independent taxation advice.
Before re-directing your super or moving your money into your product, you will need to consider whether there are any adverse consequences for you, including loss of benefits (e.g. insurance cover), investment options and performance, functionality, increase in investment risks and where your future employer contributions will be paid. Any investment is subject to investment risk, including possible repayment delays and loss of income and principal invested. Returns can go up and down. Past performance is not indicative of future performance.
The information provided is of a general nature and does not take into account your personal needs, financial circumstances or objectives. Before acting on this information, you should consider the appropriateness of the information, having regard to your needs, financial circumstances or objectives. The case studies used in the articles on this website are hypothetical and are not meant to illustrate the circumstances of any particular individual. Opinions expressed in this document are those of the authors only.