Is that the way it's normally done with above/below water transitions or is there a better way?
Water transitions were the subject of the very first thread I got involved in here - I think, eventually, most people end up coming to the same conclusion as I have seen other users arrive at the same solution independently and you can spot the telltale signs of the method in a lot of commercial stuff, from Stranger's Wrath to Tomb Raider Legend.
Simply, you render the scene with the water masked out, render the distorted scene with the water back in, then composite the masked image back over the top.