The Transition to Retirement (TTR) income stream allows Australians who have reached preservation age but are still working to access their superannuation in a structured way. This strategy can help supplement reduced working hours, manage tax efficiency, and boost retirement savings.
However, since 1 July 2017, changes to superannuation rules have impacted the tax effectiveness of TTR strategies. Understanding how these income streams work, their benefits, and potential drawbacks is crucial for making informed retirement decisions.
How Does a Transition to Retirement Income Stream (TRIS) Work?
A TRIS allows individuals who have reached their preservation age (between 55 and 60, depending on birth year) to draw an income from their super while still working. Key characteristics include:
- Minimum withdrawal of 4% of the account balance each financial year.
- Maximum withdrawal of 10% per year.
- Income payments cannot be taken as lump sums unless a full condition of release is met.
- Earnings on assets supporting a TRIS are taxed at 15%, similar to accumulation phase.
Key Benefits of a TRIS
- Supplement income while reducing work hours – A TRIS can help maintain lifestyle expenses when transitioning to part-time work.
- Tax-effective income stream – Once you turn 60, TRIS payments are tax-free.
- Super balance equalisation – Using TRIS income to make spouse contributions can help balance super between partners.
- Estate planning benefits – A TRIS can be used for a gradual re-contribution strategy to reduce potential death benefits tax.
Taxation of a TRIS
The tax treatment of a TRIS depends on the recipient’s age:
- Before age 60 – Taxable component is taxed at marginal rates but receives a 15% tax offset.
- Age 60 and over – TRIS income payments are tax-free.
- Earnings within TRIS – Since 1 July 2017, earnings on TRIS assets are taxed at 15%, unlike retirement-phase pensions which are tax-free.
When a TRIS Converts to a Retirement Phase Pension
A TRIS is automatically converted to a retirement phase pension when the member:
- Reaches age 65 (regardless of employment status).
- Retires after reaching preservation age.
- Becomes permanently incapacitated or diagnosed with a terminal illness.
When this happens, earnings on TRIS assets become tax-free, but the account balance is counted towards the Transfer Balance Cap (TBC).
Is a TRIS Still a Viable Strategy?
While the loss of tax-free earnings on TRIS assets has reduced its effectiveness, a TRIS can still be a valuable tool for:
- Individuals over 60, as income payments are tax-free.
- People using the income swap strategy, where salary is sacrificed to super and replaced with TRIS income.
- Those engaging in spouse contribution splitting or re-contribution strategies for estate planning.
Final Thoughts
A TRIS can still play a key role in retirement planning, but careful tax and strategy considerations are necessary. Seeking professional advice can help ensure your retirement income plan is optimised for maximum tax benefits and long-term financial security.