A transition to retirement income stream (TRIS) provides access to your superannuation whilst still working once you reach preservation age.
TRISs were introduced by the Howard Government back in 2005 to help people ‘transition into retirement’ by allowing them to use their preserved super to supplement their reduced income resulting from scaling back their work hours. However, few TRISs were actually used for this purpose.
Anyone from preservation age, currently age 57, can commence a TRIS as there’s no requirement to reduce work hours.
A popular strategy until 30 June 2017 was to offset the amount taken as a pension by salary sacrificing or making tax-deductible contributions to super – the power of a TRIS came from the tax arbitrage that resulted by moving from the taxable accumulation phase into the tax-free pension phase.
The superannuation reforms from 1 July 2017 impacting TRISs changed all this. Their attraction has worn off as fund earnings on investments supporting a TRIS are now taxed at 15% (unless in retirement phase). However, some positive features remain, e.g. tax-free pension payments from age 60. Also, SMSFs can offset any franking credits against tax payable and the fund may get a refund of excess franking credits.
So, is it still worthwhile commencing a TRIS?
The main reason for commencing a TRIS nowadays is for the purpose for which they were originally intended – to supplement income after scaling back work. Their name says it all – ‘transition to retirement’ income stream. However, there are other reasons.
If you’ve reached preservation age and need a little more to live on, then a TRIS may be for you.
You may want to reduce non-deductible debt, e.g. your mortgage, personal loan or credit card debt, or need funds to contribute up to the concessional contributions (CCs) cap, currently $25,000 a year. However, if you can salary sacrifice or make a personal deductible contribution from your wage, other earnings or personal savings to maximise the CCs cap, then you don’t need a TRIS. Otherwise, you’re effectively taking money out of the concessionally taxed super environment and moving it into a taxable environment.
Ideally, a TRIS should be started from age 60 (unless you need income earlier) when pension payments are tax-free otherwise the taxable component of the pension will be taxed at your marginal rate with a 15% tax offset.