Are you on the final stretch of retirement? Perhaps you want to start winding back your working hours but are not sure if you can afford it given your circumstances. This is where TRIS comes in.
Transition to Retirement Income Streams is an important cornerstone of retirement income planning. They are designed to provide Australians with flexibility in their pensions as they prepare to retire. With TRIS, members can access a limited amount of personal super fund and gradually move to retirement.
What is TTR income?
First introduced in 2005, Transition to Retirement (TTR) pension helps supplement the annual income of full-time workers aged 55-64 who reduced work hours or responsibilities as they near retirement. Workers in this age bracket do not need to retire before commencing an income stream. They only have to attain preservation age (which is based on their date of birth).
How does TRIS work?
TRIS is a standard in account-based pension (ABP). It uses preserved superannuation savings to pay Australians a tax-effective and regular income. This means you get paid a regular income consisting of both capital and interest until your account runs out.
The minimum income one chooses from a TRIS must be at least equal to 4% of the account balance at commencement and on July 1st each financial year.
Until one meets a ‘condition of release,’ he or she can only draw an income up to a maximum of 10% of the super balance from a TRIS.
Members’ earnings are subject to a tax rate of 15% maximum. However, the earnings are tax-free in a retirement phase account-based pension (ABP). While ABPs count towards the $1.6 million transfer balance cap, a TRIS does not. Once a member reaches a full condition of release, he or she can convert the TRIS into a normal ABP.
Key Benefits of TRIS
When you transfer superannuation money to a TRIS, the lump-sum tax is deferred. Depending on your super components or contributions, the income payments may be split between taxable and non-taxable components (the taxable component is taxed at your marginal tax rate with a 15% tax offset), as indicated by the Australian Taxation Office (ATO).
Upon reaching age 60, all income payments and withdrawals are tax-free.
How can one get TRIS?
To enjoy the benefits, a member first needs to set up a non-commutable TTR income stream to be eligible with transition to retirement rules. (A TTR pension is one that can’t be converted into a lump sum but pays regular payments.)
Before one can start paying a TRIS, the member must have reached their preservation age.
A member can use all or part of the current superannuation balance to start the TTR. He or she must withdraw between 4-10% of the TTR pension balance each financial year.
Members receive the superannuation guarantee and any other relevant contribution (like salary sacrifice amounts) that employers pay into the normal super funds.
TTR Strategy You Can Follow
Below are strategy options that take into account the age and taxable component.
- Salary Sacrifice and TRIS
This involves sacrificing a portion of pre-tax income to super and replacing all or part of the reduced take-home pay by receiving a TTR pension payment.
- TRIS & re-contribution
To increase the tax-free component of the super interest, TRIS pension payments may be re-contributed to super as non-concessional contributions, subject to the non-concessional contributions cap. This also potentially reduces the tax payable for a super death benefit paid to a non-tax dependent.
In Summary: Things Needed Before Commencing a TRIS Strategy
Consider the following important information before commencing a strategy.
- The preservation age is when you can access your super.
- The TRIS may generate additional taxable income (with less than 15% tax offset) if a member is under age 60.
- TRIS is not taxed when the member is over age 60.
- It is not possible to withdraw lump sums from a TRIS. Drawdowns are limited to 10% of the account balance.
- A member increases the possibility of running out of money or having less fund in retirement when the super is drawn down as a TRIS before permanently retiring.
- A TRIS is in the retirement phase when the member reaches 65 and notifies their fund that they have satisfied one of the ‘nil’ cashing restriction conditions of release, namely permanent incapacity, retirement, and terminal illness.
Whatever your circumstances are, it pays to use your salary for future investment. Follow through your super account and seek personal financial advice before making big decisions. It is especially important to anything related to your transition to retirement pension and funds.
Browse through Aged Care Weekly for more tips and advice about retirement.