Repaying debt using superannuation

3 min read

Accessing superannuation to help repay personal debt is a strategy people can consider in the lead-up to retirement. 

Typically, this might be done using a transition-to-retirement (TTR) approach and requires the applicant to be working and aged between their preservation age and 65 years old.

Preservation age is the age which you may be able to start to access your superannuation savings as shown in the table below.

Date of birth 

Preservation age (years) 

Before 1 July 1960 


1 July 1960 - 30 June 1961 


1 July 1961 - 30 June 1962 


1 July 1962 - 30 June 1963 


1 July 1963 - 30 June 1964 


After 30 June 1964 


Source: Australian Taxation Office

What does a TTR approach look like?

This approach involves a person of preservation age or older opening and drawing an income from a TTR account based pension, while continuing to work. A TTR account based pension is opened by moving superannuation funds from the accumulation account to the TTR pension account.

The person could draw income of between 4% and 10% of the commencement value of the TTR pension, adjusted based on the date the account is opened (or based on the balance as at 1 July of the subsequent financial year). The account holder can ask for the first financial year of pension payments ‘in advance’ shortly after they commence the pension and in turn, use this to assist in repaying their debts.

Things to consider

While repaying debt using pension payments and continuing to work could be beneficial for some, there are risks associated with this strategy.

For example, choosing to draw on superannuation in the form of a pension before retirement could mean:

  • Reduced superannuation savings to live on once the individual does retire.
  • Pension payments from an account based pension are not completely tax free until the age of 60 so there may be tax implications.
  • If existing spending patterns are maintained this may mean that individuals could continue to accrue further debt in the future while reducing their retirement savings.

It is important that you carefully consider whether this strategy is right for you. You may wish to seek advice from a financial adviser on an appropriate strategy based on your circumstances.

Looking closer at the strategy

This fictional example shows how one instance of the TTR debt repayment strategy could work.

Dorothy (age 60) earns $40,000 p.a. working 20 hours per week and has $250,000 in her superannuation. She has a credit card debt of $18,000 and is having difficulty making the necessary minimum repayments despite making changes to her lifestyle.

She considers a TTR strategy as follows:

  • She uses her $250,000 superannuation to commence a TTR account based pension as at 1 July.
  • She withdraws $18,000 as a pension payment and uses it to completely repay her credit card debt (this is between the 4% minimum of her balance (equivalent to $10,000) and the 10% maximum of her balance (equivalent to $25,000)).

This strategy has allowed her to repay her debt and avoid future interest payments on her debt. However, it also means that she has reduced her superannuation savings by $18,000, which may have implications for her post retirement.

Had Dorothy been 57 years old instead, she would have needed to withdraw a higher pension payment to receive an after-tax amount of $18,000. This is because payments from an account based pension are only tax free after reaching age 60.

In this situation, Dorothy may have wanted to consider whether her finances could be better managed by exploring alternative options to repay her debt, such as refinancing her credit card debt instead or using other forms of savings.

Could managing debt or planning your retirement be your next smart move? Speaking to a financial adviser may help.
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This information is current as at 25 July 2018 and does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it.  This publication may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.  BT - Part of Westpac Banking Corporation ABN 33 007 457 14, cannot give tax advice. Any tax considerations outlined in this publication are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of opening and drawing an income from a TTR account based pension can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.