FocusOn - Superannuation Pension Strategy
Transition to Retirement Income Streams (TRIS)
A TRIS is available to anyone who has reached their preservation age (currently age 55). If you were born before 1 July 1960 your preservation age is 55 and this rises to 60 for those born after 1 July 1964.
What is a TRIS?
A TRIS is a non-commutable income stream (see below) that provides access to a member's superannuation money prior to retirement.
A non-commutable income stream is one which, when it ceases, is not able to be paid as a lump sum. It must instead revert back to the accumulation phase. The current pension rules require a minimum pension payment of 4% (temporarily 3% for 2013) of the account balance and a maximum of 10% annually.
What are the benefits of having a TRIS?
A TRIS can be used to supplement your income if you wish to reduce your working hours. Alternatively, you may wish to continue working full time and salary sacrifice more heavily into superannuation while supplementing your income with pension payments from a TRIS.
An advantage of commencing a TRIS is that the income and capital gains earned by the fund's assets that support the pension account are exempt from tax.
Stopping a TRIS?
A member can stop a TRIS at any time and revert back to the accumulation phase. Before ceasing a TRIS the minimum pension payment requirement must be met.
Make contributions to the same fund?
You can continue to make contributions to the same fund but you will have two separate accounts. Contributions continue to attract 15% contributions tax and are held in a separate taxable accumulation member account. The income and capital gains earned by the fund's assets that support the pension account are exempt from tax.
Where both a pension account and an accumulation account are present in a Self Managed Superannuation Fund (SMSF) an annual Actuarial Certificate is required to establish the proportion of the fund's income that is exempt.
Do all superannuation funds offer a TRIS?
It is not compulsory for a fund to offer a TRIS. Check with your current fund to determine if they offer a TRIS. A SMSF can offer a TRIS if permitted to do so by its Trust Deed.
What tax will I pay on the pension withdrawals?
If you are less than 60 years old, the taxable component of your pension withdrawal will be included in your individual tax return and will be taxed at your marginal tax rate. If the income is paid from a taxed source you will be eligible for a tax offset equal to 15% of the taxable component.
Any pension you receive after age 60 from a taxed source will be tax free in your hands.
Examples of the effect a TRIS has on tax payable and net superannuation balances for year ended 30 June 2012
Annual Full Time Salary $110,000, superannuation fund balance $500,000 and 100% taxable.
Aim: To maintain same disposable income.
| Example 1 | Member under 60, reduces work hours to four days per week and supplements income with a TRIS. TRIS commenced with $500,000 |
| Example 2 | Member is over 60, reduces work hours to four days per week and supplements income with a TRIS. TRIS commenced with $451,000. |
| Example 3 | Member under 60, Salary Sacrifices and supplements income with a TRIS. TRIS commenced with $404,600 |
| Example 4 | Member over 60, Salary Sacrifices and
supplements income with TRIS. TRIS commenced with $308,000. |
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Example 1 |
Example 2 |
Example 3 |
Example 4 |
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Full salary |
TRIS |
TRIS |
TRIS &salary sacrifice |
TRIS &salary sacrifice |
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Income comparison |
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|
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|
|
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Salary |
110,000 |
88,000 |
88,000 |
110,000 |
110,000 |
|
Less Salary Sacrifice |
0 |
0 |
0 |
15,100 |
15,100 |
|
Plus Pension |
0 |
17,685 |
13,530 |
12,140 |
9,287 |
|
Less Income Tax/Medicare/Rebate |
30,297 |
25,982 |
21,827 |
27,337 |
24,484 |
|
Disposable Income |
79,703 |
79,703 |
79,703 |
79,703 |
79,703 |
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|
|
|
|
|
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Tax Comparison |
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|
|
|
|
|
Income Tax/Medicare/Rebate |
30,297 |
25,982 |
21,827 |
27,337 |
24,484 |
|
Plus Contributions Tax |
1,485 |
1,188 |
1,188 |
3,750 |
3,750 |
|
Plus Earnings Tax in Super |
3,050 |
40 |
334 |
700 |
1280 |
|
Total Tax |
34,832 |
27,210 |
23,349 |
31,787 |
29,514 |
|
Tax Saving |
|
7,622 |
11,483 |
3,045 |
5,318 |
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|
|
|
|
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Super Balance Comparison |
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|
|
|
|
|
Contributions |
9,900 |
7,920 |
7,920 |
25,000 |
25,000 |
|
Less Contributions Tax |
1,485 |
1,188 |
1,188 |
3,750 |
3,750 |
|
Less Pension Withdrawals |
0 |
17,685 |
13,530 |
12,140 |
9,287 |
|
Add Earnings – 4% |
20,337 |
19,562 |
19,728 |
20,364 |
20,479 |
|
Less Tax on Super Earnings |
3,050 |
40 |
334 |
700 |
1,280 |
|
Annual Movement in Super |
25,702 |
8,569 |
12,596 |
28,774 |
31,162 |
Published : Aug 2012