TRANSITION TO RETIREMENT PENSIONS – STILL USEFUL!

By Sam Eley

A Transition to Retirement Income Stream (TRIS) is a way for those who have met preservation age to be able to commence receiving an income stream from their superannuation savings.

Preservation age for superannuation is listed below:

For those over age 60, you could reduce work hours and supplement your income with a tax–free income stream from superannuation. For those under age 60, you can access an income–stream via the TRIS; however, pension payments are not tax–free but assessed at your marginal tax–rate with a 15% tax offset.

Previously, TRIS pensions were taxed like Account-Based Pensions in that any earnings and capital gains within the TRIS were taxed at 0%. This meant that members could move the bulk of their superannuation to a 100% tax–free investment environment, whether they needed the income from their superannuation or not.

Governments have since closed this loophole and ensured TRIS pensions are being utilised as intended – to supplement income as you transition to retirement. TRIS pensions are now taxed like standard Accumulation balances within superannuation, 15% on earnings and 10% on capital gains (if the asset is owned over 12 months, 15% otherwise), which has reduced the effectiveness of this strategy.

However, the TRIS strategy remains useful despite these tax changes and can assist with reducing personal income tax.

Case Study

Gemma is 61 years old and continues to work full–time. She will likely continue working full–time for the next six years. She earns $120,000 per annum. Having recently renovated her home, and with the increased cost of living, she has $300,000 remaining in debt. Gemma has no spare cash flow to increase her superannuation contributions. She has a super balance of $900,000. Gemma has not yet met a condition of release to access her superannuation benefits and commence an Account–Based Pension. However, she has met her preservation age.

Gemma’s employer contributes the 11% Superannuation Guarantee to her fund this Financial Year. Based on her income of $120,000, this would see contributions of $13,200 to super on her behalf. The concessional contribution cap is currently $27,500, meaning Gemma could still contribute up to $14,300 to superannuation and claim a tax deduction on this amount if she had the cash flow to do so.

If Gemma commenced a TRIS with $880,000 of her super balance on July 1 2023, she could draw a minimum of 4% of the pension balance ($35,200) in the current Financial Year or up to a maximum of 10% ($88,000) of the balance if required.

To generate a larger tax deduction in the current Financial Year, Gemma could draw the $35,200 minimum pension tax–free as she is over age 60 and re-contribute $14,300 as a concessional contribution and $20,900 as a non–concessional contribution back into her superannuation fund, essentially recycling this money back into superannuation but saving tax while doing so.

The net result from a tax perspective is as follows:

Gemma saves $2,788 in tax in the current Financial Year by maximising her concessional contribution cap. She could continue to utilise this strategy each year until she ceases work in 6 years.

While this isn’t as large an overall tax saving as was previously available under the old TRIS rules, there is still the opportunity to save meaningful amounts of income tax through the TRIS strategy. It is worth considering, particularly if you are over age 60 and unable to maximise concessional contributions through cash flow and personal savings.