Transition to Retirement Income Streams (TRIS) ,also known as Transition to Retirement Pensions. The Government introduced the Transition to Retirement measure over 10 years ago to make it easier for individuals to stay in the workforce longer and ease into their retirement. The scheme essentially offers individuals the option of reducing their working hours by supplementing their wages with superannuation pension income, rather than needing to retire permanently in order to access their superannuation benefits.
Regardless of the hours you work, you now have more options. You can access your super provided you meet the conditions. Firstly, you must have reached your preservation age (see Table 1 below). Secondly, you must use your super to buy a special ‘income stream’ (also known as a pension).
Table 1: What is my preservation age?
The special income stream lets you receive a regular income from your super benefits but you can’t generally withdraw a lump sum. You will only be able to withdraw a lump sum when you retire permanently from work, when you reach 65 years of age, if you become permanently incapacitated, have a terminal illness or if you die (in which case your dependents will receive your benefit).
Another requirement is that the amount paid each year must be between a minimum and maximum percentage of the member’s balance. The maximum pension amount that can be drawn is 10% of the balance, and the minimum pension requirement for all pensions is shown on Table 2. Members commencing a TRIS will generally be under 65, so the minimum requirement is usually 4%.
Table 2: Minimum Pension Requirement
Just remember!
If you are under 60 years of age, the taxable component of the pension you withdraw from your superannuation must be declared in your income tax return. This generally comes with a 15% offset. After 60, the pension becomes tax free and does not need to be declared in your individual income tax return.
How does the TRIS work in practice?
Mr Simpson is 57 years of age and currently working full time. He would like to cut down his working hours from 5 days a week to 3. His current income is $75,000. He has $500,000 in his super fund, all taxable. Let’s assume 2020 income tax rates.
We can see from this example that Mr Simpson is able to maintain his net income from when he worked full time by supplementing it using a TRIS, as long as he stays within the minimum (4%) and maximum (10%) range (in this case it works as Mr Simpson has $500k). Since Mr Simpson is under 60, he would also need to declare the amount that he took as a pension, which you can see that I’ve calculated at $4,760.66 (assuming no other income, of course).
Prior to 1 July 2017 the earnings generated by the capital of a TRIS pension was tax free – this no longer applies.
It gets even better after Mr Simpson turns 60.
**Note that Mr Simpson doesn’t need to convert 100% of his super balance into a TRIS, in this example he only needs to utilise around $200,000 to take out between 4%-10%. The rest of his balance can remain in accumulation phase.
